Private limited companies incorporated in Cyprus are a common vehicle for undertaking business in Cyprus. Such a company can have one shareholder who is also the manager or an employee of the company.

Corporation tax rate

Cyprus companies are taxed at a corporate income tax rate of 12.5%, which is one of the lowest corporate tax rates in the European Union.

No withholding taxes

No withholding taxes are imposed on dividends paid to non- tax resident individual shareholders; tax resident but non-domiciled individual shareholders or Cypriot tax resident corporate shareholders. Dividends paid to individual shareholders who are Cypriot tax resident and Cypriot domiciled are subject to a withholding tax of 17%.

Exemption from tax on dividend income

Dividend income received by a company is exempt from tax irrespective of its source provided that the company paying the dividend either

• Engages directly or indirectly in more than 50% of activities that give rise to non-investment income or
• The tax burden on the dividend paying company’s income is not lower than 6.25%.

Notional interest deduction upon the introduction of new equity

Cyprus companies are entitled to a notional interest deduction (NID) upon the introduction of new equity.
The NID is available on new qualifying equity issued by a Cyprus company on or after 1 January 2015 and used in the business. The NID is calculated by multiplying the new qualifying equity amount by a reference interest rate. The reference interest rate is equal to the yield of the 10-year Government bond of the country in which the funds are invested; plus 3% (or the yield of the 10-year Cyprus Government bond plus 3%, if higher). The NID is a tax-allowable deduction limited to 80% of the taxable profit derived from assets financed by the new equity.

Depending on the level of capitalization of a company; the NID could reduce the effective tax rate of a company to as low as 2.5%.

Capital gains and income tax exemption for securities

Cyprus does not impose income or capital gains tax on the profits and gains derived from the disposal of securities; irrespective of whether the profits and gains are considered to be of a revenue or capital nature.