Cyprus is known for having one of the most attractive and business-friendly tax systems in the European Union. It combines a low corporate tax rate with a straightforward structure, while remaining fully compliant with EU legislation and OECD standards on transparency and anti-avoidance. This balance has made Cyprus a popular base for both local entrepreneurs and international companies.
Corporate tax
The standard corporate tax rate in Cyprus is 12.5 percent, one of the lowest in the EU. The system is based on residence, which means that companies managed and controlled in Cyprus are taxed on their worldwide income. Non-resident companies are taxed only on income earned within Cyprus.
Certain types of income may be exempt or taxed at a reduced rate. For example, dividends received or profits from the sale of securities are exempt from corporate tax, and there are specific incentives for shipping companies and intellectual property (IP) income under the country’s IP box regime.
Personal income tax
Individuals who are tax residents of Cyprus are taxed on their worldwide income. Non-residents are taxed only on income earned in Cyprus. The personal income tax system is progressive, with rates ranging from 0 to 35 percent.
Cyprus offers significant exemptions for new residents who meet certain conditions, including tax breaks for high-earning professionals relocating to the country. These incentives are designed to attract skilled talent and foreign investment.
Tax Residency
A person is considered a tax resident of Cyprus if they meet either:
- 183-Day Rule: Reside in Cyprus for more than 183 days in a year.
- 60-Day Rule: Reside in Cyprus for at least 60 days, do not reside in any other country for more than 183 days, maintain a permanent residence in Cyprus, and are employed or conduct business in Cyprus.
Non-Domiciled (Non-Dom) Status:
- Individuals who are tax residents but not domiciled in Cyprus enjoy exemptions on certain foreign-source income, especially dividends and interest.
Value Added Tax (VAT)
Cyprus applies VAT to most goods and services. The standard rate is 19 percent, with reduced rates of 9 percent and 5 percent for specific categories such as tourism services, food and pharmaceuticals. Certain transactions, such as exports, are as usual zero-rated. Businesses with an annual turnover above the registration threshold must register for VAT.
Double taxation treaties
Cyprus has an extensive network of double taxation agreements with more than 60 countries. These treaties are designed to prevent income from being taxed twice and to encourage cross-border trade and investment.
Compliance and reporting
Taxpayers in Cyprus are required to file annual tax returns. Companies must prepare audited financial statements in accordance with International Financial Reporting Standards (IFRS). The tax year follows the calendar year, and returns must be filed within set deadlines to avoid penalties.
Why it matters for businesses and individuals
The combination of low rates, clear rules and strong treaty connections makes Cyprus an attractive location for structuring international operations or relocating as an individual. However, compliance is essential. Understanding local rules and keeping up with any legislative changes helps ensure that the tax advantages of Cyprus are fully realised without the risk of penalties.
