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The legal & tax framework for the
operation of European & International business affairs through a
Cyprus company.
Introduction
Cyprus, as a full member of the European Union, has had its Tax
Legislation reformed with the aim to conform to the standards and
code of conduct of the E.U.
The main provisions of the Cyprus tax law are as follows:
- A company is taxed if it is a resident of Cyprus.
- A company is considered resident if its management and control is in Cyprus.
- The term management & control is not defined in legislation. It is
generally understood to mean the place where the directors are
residents or the place where the management & control is exercised.
Company which is resident
- A company which is resident, is taxed in Cyprus on its worldwide
income.
- Foreign taxes paid are credited against Cyprus Tax paid, on the same
income.
- A corporation tax rate of 10% is applicable. This rate applies to
the total income less total expenses.
- The company may be entitled to benefit under the double taxation
treaties.
- Dividend income received in Cyprus from abroad is wholly exempt.
- Profits earned from a permanent establishment abroad are fully
exempt from corporation tax, except if
o More than 50% of the paying company’s activities result in
investment income, and
o The foreign tax is significantly lower than the tax rate in Cyprus.
- Profit from the disposal of shares & other securities is not
taxable.
- Interest earned in the ordinary course of business is not taxable.
- 50% of interest earned is not taxable (other than interest earned in
the ordinary course of business).
- Tax losses can be carried forward to be set – off against future
profits (without time limit).
Company which is not resident
- A company registered in Cyprus but managed and controlled from
abroad will only be taxed in Cyprus on its income generated in Cyprus.
- However such a company may not be entitled to benefits under the
double taxation treaties.
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