Cyprus Tax & Business Guide - Deloitte

Basic facts
Population 775,927 Inflation 2.6% (2005)*
Main languages Greek, Turkish, English GDP per head US$21,850*
Currency Cyprus Pound (CYP) GDP growth 3.4% (2005)*
Economic communities European Economic Area, EU, WTO
GDP sources 3.7% agriculture, 19.8% industry, 76.5% services
*Economist Intelligence Unit.
Political environment

Cyprus has been divided politically since 1974, when Turkey occupied the north of the island. The Turkish-controlled northern part is not recognised by any country other than Turkey. All other countries recognise the Greek Cypriot government of the Republic of Cyprus in the south.

The Greek Cypriots rejected, in a referendum, a UN-brokered settlement endorsed by Tassos Papadopoulos, the Cypriot president, and Rauf Denktash, the Turkish-Cypriot leader. In May 2004 the whole island legally became part of the EU, but EU legislation does not apply to the Turkish-occupied north. The next Cypriot elections are due in February 2008 (presidential). Greek Cypriot voters reaffirmed their rejection of unification by increasing the nationalistsÌ majority in elections in May 2006.
Foreign trade and investment
Exports US$1.5bn (2005)* Imports US$5.7bn (2005)*
*Economist Intelligence Unit.

Leading exports: Manufactured products and, to a lesser extent, agricultural goods.

Main export markets: The UK, Greece, the UAE and Germany.

The government encourages foreign investment, particularly in tourism and industry. Improving the business climate to make it more attractive to foreign investment is a specific objective of the three-year development plan for 2004Ò06.
Business and financing
Business forms Limited liability company, single-member company

The main corporate form is the limited liability company. The single-member company has been permitted since 2000. Partnerships and branches are also allowed. Co-operatives are permitted and play a significant role in banking and the agri-food industry, but they are not a common form of investment for foreign companies.

There are no set limits on foreign ownership of local firms.
Labour environment
Unemployment rate 4.0% (2005)* Minimum wage CYP 362 (monthly)
*Economist Intelligence Unit.

Around 70% of the labour force is unionised.

The minimum wage for adult full-time workers is CYP 362 per month.

Employers and employees must contribute to the national social insurance scheme.

Policy on residence and employment for foreigners depends on whether there are Cypriots available to do the job, on scientific and academic qualifications, and on whether the applicant will be investing in Cyprus.
Taxation
Corporate tax
Main rate 10%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Cypriot-source income. An entity is resident in Cyprus if management and control are exercised in Cyprus. The corporate tax rate is 10%, and a lower rate applies to shipping companies. Dividend income is exempt from tax in the hands of all companies.
Individual tax
Progressive rates to 30%

Resident individuals are taxed on worldwide income; non-residents are taxed only on Cypriot-source income. An individual is resident if physically present in Cyprus for periods of more than 183 days in aggregate in a tax year. Individuals are taxed at progressive rates to 30%, with the first CYP 10,000 tax-free. Residents are subject to a final withholding tax of 15% on dividends received and 10% on interest.
Capital gains
Most gains are not taxable

Generally, there is no tax on gains of companies or individuals in Cyprus. However, tax of 20% applies to gains on immovable property located in Cyprus or on shares of companies owning such immovable property.
Indirect tax
Standard rate 15% Lower rate 5%

Value-added tax (VAT) applies to most transactions. The standard rate is 15% and a lower 5% rate applies to hotel services, catering, gas, books and newspapers, and the supply of new dwellings (subject to regulations). Zero-rating applies to exports, food, medicine and international transport. Exemptions include rental of immovable property, financial services, insurance and postal services.

Businesses with an annual turnover above CYP 9,000 must register.
Tax administration and compliance
Tax year Corporations and Individuals: calendar year

Companies and the self-employed pay advance tax in three instalments on August 1st, September 30th and December 31st in the tax year. A final tax payment is due on submission of a self-assessment tax return by August 1st of the following year. Employment income of individuals is taxed by withholding. Other income of individuals is taxed by three advance payments, and a tax return is due by April 30th following the tax year-end.
Additional tax information
Withholding taxes There is no withholding tax on payments to non-resident companies or individuals.
Tax treaties Cyprus has concluded more than 40 tax treaties.
Dividends Dividends paid to resident companies are exempt and resident individuals are subject to a 15% tax.
Revenue protection ArmÌs-length principle; general anti-avoidance for artificial transactions.
Groups There is no provision for consolidated taxation but group relief is available.
Incentives Shipping.
Other taxes Capital gains tax, Immovable property tax, Import duties, Special defence fund levy.