Taxes

The fiscal regime is predominantly based on two key tax laws:
- the Income Tax Law of 2002; and
- the Special Contribution for Defence Law of 2002 (the SCDT Law).

• Income tax is imposed on the worldwide income of all resident Cyprus persons (individuals and corporations). 
• Non-resident persons are liable for tax on their Cyprus-sourced income only.
• A corporation is tax resident when its management and control is exercised in Cyprus. Although there is no concrete definition, it is suggested that „management and control” is present in the case where the majority of the directors are Cyprus residents or in the case where the Board of Directors holds its meetings in Cyprus.
• The Income Tax Law provides for a uniform corporate tax rate of 10% on the taxable profits of Cyprus tax-resident companies.
• An additional tax of 5% is imposed on the taxable profits of tax-resident companies which exceed CYP 1 000 000 (approximately €1,75m) for the tax years 2003 and 2004. The sources of income used in calculating the taxable income of tax-resident companies under the Income Tax Law include - business profits; interest; royalities; rents from property; and any consideration for the trading of goodwill.
• Ship management companies are taxable at 4,25% but can elect to be taxed in accordance with their tonnage tax rates.
• Under the SCDT Law, dividend income received by a Cyprus tax-resident company from a non-resident company is exempt from tax, provided the tax-resident company holds at least 1% of the share capital of the non-resident company.
• There are no withholding taxes on dividends paid to non-resident individuals or companies.
• Profits arising from the disposal or trading of securities are not subject to income tax.

• The VAT system of Cyprus is based on the European model of VAT (Sixth VAT Directive 77/338/EEC).
• VAT rates:
  - Standard 15% of VAT;
  - Reduced 5% VAT;
  - Zero VAT.