Cyprus Tax Incentives Update

The below list includes the current corporate and personal tax incentives for a business or an individual to do business in the island. As individuals who live and work in Cyprus, we consider that these reasons, along with the weather and living conditions, are essential. These are:

🏢 Corporate Tax Incentives

• Low Corporate Tax Rate
  • 12.5% on net profits – one of the lowest in the EU.
• Dividend Income Exemption
  • Dividends received by Cyprus companies are generally exempt from tax (subject to participation exemption rules).
• Tax-Free Gains on Securities
  • Profits from the sale of shares, bonds, derivatives, and other securities are exempt from taxation, whether trading or capital gains.
• Notional Interest Deduction (NID)
  • Deduction available on newly introduced equity capital, reducing the effective tax rate.
• Intellectual Property (IP) Regime
  • 80% of qualifying IP income is exempt from tax (copyrights, patents, trademarks).
  • Effective tax rate on qualifying IP can be as low as 2.5%.
• Group Relief
  • Losses can be carried forward for 5 years or set off against profits of other Cyprus tax-resident group companies.
• Tax Neutral Reorganisations
  • Mergers, divisions, transfers of assets/shares can be carried out without tax consequences.
• No Withholding Taxes
  • No withholding tax on dividends, interest, and royalties paid to non-residents (with limited exceptions).
• Interest Deductibility
  • Interest paid to non-resident group companies is tax deductible, provided at arm’s length.
• Capital Gains Tax
  • No capital gains tax, except on disposals of immovable property located in Cyprus at 20% or shares in companies holding such property.
• Transfer Pricing Rules 
  • Since 1 January 2022, Cyprus has implemented OECD-aligned TP rules.
  • Related-party transactions must be at arm’s length.
  • Companies must maintain Local File, Master File, and submit an annual Summary Table, if thresholds are exceeded.

👤 Personal Tax Incentives

• Non-Domicile Regime
  • Individuals who become Cyprus tax residents but are non-domiciled pay no tax on dividends and interest (only taxed under SDC) for 17 years.
• Employment Income Exemptions
  • 50% exemption on annual income > €55,000 for new residents (valid for 17 years).
  • 20% exemption (up to €8,550) for income < €55,000 for new residents (valid for 7 years).
• No Wealth or Inheritance Taxes
  • Cyprus does not levy wealth, inheritance or estate taxes.
• No Exit Tax for Individuals
  • Individuals changing tax residency are not subject to exit tax.

🚢 Sector-Specific Incentives

• Shipping & Tonnage Tax System
  • EU-approved, covering shipowners, charterers, and ship managers.
  • Tax based on tonnage of ships, not profits – among the most competitive globally.
• Film & Audio-Visual Industry Incentives
  • Rebates up to 35% or tax credits for international productions filming in Cyprus.
• R&D Incentives
  • Enhanced deductions for qualifying Research & Development expenses.

💡 Other Key Advantages

• EU Jurisdiction – full access to EU directives, single market, and regulatory framework.
• Extensive Double Tax Treaty Network – over 65 treaties reducing or eliminating withholding taxes worldwide.
• Attractive VAT Regime – standard VAT rate of 19%, with reduced rates of 5% and 9% for certain sectors (tourism, pharmaceutical, food, etc.).
• No Capital Duty – no tax on share capital increases

For more information, feel free to contact our Managing Director at astavrou@stavroucpa.com