We set out, herewith, a brief summary of the income tax regime in Cyprus:

1. Under the income tax regime, Cyprus tax is imposed:

        a. On the worldwide income of all residents of Cyprus; and  

        b. On the income generated in Cyprus of any non-residents of Cyprus.  

2. As regards tax residency:  
 

1. In the case of companies, the test of residency is whether the relevant company has its management and control in Cyprus. It would appear, therefore, that any companies that carry out operations outside Cyprus and belong to non-residents of Cyprus and having their majority of their board of directors outside Cyprus are not liable to taxation in Cyprus. This would mean that such companies cannot take the benefit of any double tax treaties involving Cyprus. On the other hand, if a company wishes to take advantage of the double tax treaty network of Cyprus, it is highly advisable, among others, to have the majority of the directors in Cyprus and to provide that all board meetings shall take place in Cyprus.

2. An individual is considered to be a tax resident Cyprus if he/she is physically present in Cyprus for a period or periods exceeding in aggregate 183 days during the calendar year. Exceptionally, and if the relevant individual so wants, he/she may be considered a tax resident of Cyprus if he/she spends at least 60 days a year in Cyprus and fulfils a number of other conditions.

3. The law provides for a uniform corporate tax rate of 12.5%.  

4. Profits from the disposal of any securities are exempt from income tax.  

5. The treatment of dividends is as follows:  
 

1. Dividends are exempt from income tax.

2. Dividends received or deemed to be received by a tax resident of Cyprus are subject to a special contribution for defence (the “SDC”) at a rate of 17%, except in the following cases:

                 i. A company that is a resident of Cyprus is exempt from the special contribution tax on dividends if it receives the dividend from another company, which is a resident of Cyprus.   
      
                 ii. A company that is a resident of Cyprus is exempt from the special contribution tax on dividends if it receives the dividend from another company which is not a resident of Cyprus. This exemption will not apply if: (a) the payer engages directly or indirectly more than 50% in activities which lead to investment income and (b) the foreign tax burden of the payer is substantially lower than the tax burden of the recipient.

6. The treatment of interest is as follows:  
 

1. If the interest is received in the recipient’s ordinary course of business or in close relation to it, it will be taxable as trading income at the corporate tax rate of 12.5%.

2. If the interest is received not in the recipient’s ordinary course of business or in close relation to it, it will not be subject to income tax but to SDC at a rate of 30% which is levied on the gross interest received and, therefore, if substantial interest is expected, it is better to create a dedicated finance company so that it would come under paragraph (a) above.

7. It is noted that an individual who is not considered to be domiciled in Cyprus is not subject to SDC on dividend or interest received even if he/she is a tax resident of Cyprus.  

8. An individual is considered to have his domicile in Cyprus for SDC purposes if:
 

1. subject to certain exceptions, if he/she has his/her domicile of origin in Cyprus based on the provisions of the Cyprus Wills and Succession Law, Cap. 195, or 

2. has been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the tax year.

9. Profits generated by a company resident of Cyprus from a permanent establishment outside Cyprus are exempt from taxation.