Tax reforms came into effect from 1 January 2003 in order to conform to the European Union and OECD requirements and at the same time to maintain the competitiveness of Cyprus as an international business center and enhance its attractiveness as a suitable jurisdiction for holding companies.
The general advantages offered by Cyprus are enhanced by the following tax incentives:
- Uniform corporate tax rate of 10% which is the lowest in Europe.
- No withholding of tax on dividend income received from subsidiary companies from abroad, provided the direct holding is at least 1% of the share capital of the overseas company. The exemption does not apply if the subsidiary company engages in more than 50% of its activities in producing investment income and the foreign tax burden on its income is substantially lower than that in Cyprus.
- Double taxation treaties with over 40 countries, enabling lower withholding tax rates on dividend or other income received from the subsidiaries abroad.
- Being an EU member state, holding companies registered in Cyprus may enjoy no withholding of tax on dividends received from EU subsidiaries as a result of the utilization of the EU Parent Subsidiary Directive.
- No withholding of tax on capital gains and income on the disposal of either the shares of the subsidiary’s share capital income or the shares of the Cyprus holding company.
- No tax on capital gains or income on the liquidation of the Cyprus holding company.
- No withholding tax on the distribution of profits.
- Outward dividends by the Cyprus holding company to its non-resident shareholders are exempt from any withholding of taxes.
- Profits earned from a permanent establishment abroad are fully exempt from Cypriot tax, subject to certain conditions.
- A diversified group of Cyprus companies belonging to a Cyprus holding company can set off group relief for the utilization of tax losses.
- No minimum holding period.
- The establishment of The Larnaca Free Zone to encourage external trade and international trade through the provision of various incentives such as the abolishment of customs duties and taxes in respect of good imported into the zone.