Cyprus is well established as a favourable jurisdiction in Europe for business structuring and international tax planning. By ensuring proper long-term oriented tax planning and structuring are optimised of the Cyprus Company in the International Tax plan is in place that will provide tax optimisation and thus having a return on investment. Due to the fact, that Cyprus has a distinctive combination of advantages including a unique location, solid legislation and strong professional environment, these factors and more have resulted in Cyprus becoming one of the most attractive countries for the incorporation of International Business Companies (IBCs) in Europe over the last decade.
Principally, all Cyprus Tax Resident companies are taxed on the worldwide income accrued or derived from sources in Cyprus and abroad. A company is considered as a Resident Cyprus company if it is managed and controlled in Cyprus.
The Corporation Tax in Cyprus is 12.5% which is uniform and it applies on trading profits, making it one of the lowest in Europe.
If a company incurs a loss during a tax year, then this loss can be carried forward and used for tax relief of next year’s profit. Similarly, in case the company does not make profit then it can utilise the accumulated losses against the first available profits. The offset against the profit must arise during the next 5 years that the losses were created, otherwise this carry forward opportunity will be lost.
Cyprus having EU membership, and therefore use of EU Directives is also allows benefits to other Third countries. Application of some key EU directives are as follows:
1. Merger Directives –Resident and Non-Resident Companies have no taxation obstacles or consequences relating to reorganisation, mergers, divisions, transfer of assets and exchange of shares
2. Parent / Subsidiary Directive – Withholding tax is not paid on dividends and has immediate effect as long as there is 10% minimum shareholding and 2 years of holding. The tax is withheld abroad and the dividend is exempt in Cyprus (subject to conditions)
3. Interest / Royalty Directives – Withholding tax is not paid on the interest to Non–Residents and has immediate effect provided there is 25% minimum shareholding (only in case of royalties) Royalties are subject to corporation tax.