Cyprus – Benefits of Cyprus Trading Companies
Cyprus offers the lowest income tax rate in European Union. The following factors are critical for making a decision for a jurisdiction of a trading company:
- Corporate income tax rate
- Tax treatment of outgoing dividends
- Tax treatment of interest
- Tax treatment of royalties
- Tax treatment of capital gains
- Transfer pricing regulation
- VAT regulation
- Availability of foreign tax credits
- System of Double Tax Agreements (DTA)
- Reputation of jurisdiction
Corporate Income Tax Rate
Cyprus companies are taxed on worldwide basis. Income tax rate is 12,5%. Proper tax planning can reduce effective income tax rate.
Treatment of Outgoing Dividends
Outgoing dividends are exempt from withholding tax.
Tax Treatment of Interest
Interest payable by a Cyprus company to non-residents is exempt for withholding tax.
Tax Treatment of Royalties
Royalties payable to non-residents are subject to 10% withholding tax unless a lower rate applies under Double Tax Agreements (DTA)
Tax Treatment of Capital Gains Tax
Except for disposal of immovable property in Cyprus, capital gain on disposal of assets is not subject to Capital Gain Tax (CGT)
Transfer Price Regulation
There is no specific transfer price regulation in Cyprus. However, Cyprus follows OECD recommendations on transfer pricing
A Cyprus company can be registered for Value Added Tax (VAT) in Cyprus. This allows a Cyprus company to trade with companies located in other EU member states at zero rate, i.e. a Cyprus company can buy goods from a German company at zero VAT rate and sell the same goods at zero VAT rate to a French company.
Trade outside of EU is excluded from VAT. There are significant changes in European VAT legislation from January 1, 2010.
Foreign Tax Credits
Foreign tax credits are allowed in Cyprus on tax suffered in other jurisdictions.
System of Double Taxation Agreements
Cyprus signed and ratified more than 40 DTA.
Reputation of jurisdiction
Cyprus is a full member of EU from May 1, 2004.