Double Tax treaties

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Published: Monday, 29 September 2014 16:35

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Cyprus has concluded 35 double tax treaties which apply to 45 countries. The main purpose of these treaties is the avoidance of double taxation on income earned in any of these countries. Under these agreements, a credit is usually allowed against the tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country and as a result the tax payer pays no more than the higher of the two rates.

Further, some treaties provide for tax sparing credits whereby the tax credit allowed is not only with respect to tax actually paid in the other treaty country but also from tax which would have been otherwise payable had it not been for incentive measures in that other country which result in exemption or reduction of tax.

To give a simplified example:

• A company is taxable in both treaty countries, say 40% at country A and 20% at country B. If the 20% tax at country B is paid, then a tax credit of 20% would be given in country A. The result is 20% tax in country A and 20% in country B.
• If now, in country B the normal tax of 20% is reduced to 5% (for incentive purposes), if a tax sparing credit is provided in the respective treaty, the tax to be deducted in country A would still be 20%, as if full tax of 20% was actually paid in country B. The result would be 5% tax in country B and, in spite of that, a tax of only 20% in country A (the remaining 15% being the tax sparing credit).

All Cyprus resident companies qualify for Double Tax Treaty protection.

List of Double Tax Treaties with treaty rates for payments of dividends, interest and royalties.

For the full text of double tax treaties please go to the Ministry of Finance website by clicking here:

Accession to the European Union

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Published: Monday, 29 September 2014 16:34

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Cyprus became a member of the EU in 2004. The benefits are substantial and include political, economic, social, environmental and other benefits.

• Political benefits
  • Improved security which is derived from membership of a community of nations that stresses its attachment to democracy, respect of human rights, fundamental freedoms and the rule of law.
  • Reference to European Treaties and the body of EU law in resolving problems and disputes.
  • The ability to participate as a voting member in the decision - making process of the EU, so as to be able to influence decisions that affect Cyprus and the whole of Europe.
  • The provision of EU citizenship to the citizens of Cyprus.
    
    
• Economic benefits
  • The export of goods and services to EU Member States has increased.
  • Attraction of investment from the EU in activities in which Cyprus possesses comparative advantages, thus accelerating the transformation of Cyprus into a regional business centre.
  • Adoption of the Euro and participation of Cyprus in the Economic and Monetary Union (EMU) as from 1 January 2008, has helped to control inflation and keep interest rates low, which are prerequisites for increased investment and higher growth rate. The abolition of the exchange risk has also helped to boost exports.
  • Increased financial assistance from the EU to Cyprus.
    
    
• Other benefits
  • Laws and standards are constantly upgraded and modernized.
  • Greater emphasis on improvement in the environment, safety standards and quality improvement.

Foreign employees of Cyprus companies

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Published: Monday, 29 September 2014 16:34

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Cyprus companies with foreign shareholders may decide to set-up a fully fledged office in Cyprus in order to carry out their operations. Such companies can obtain permission to employ expatriate staff who will be living and working in Cyprus.
Work permits can be readily obtained by foreign employees of such companies which set up an office in Cyprus provided they work in executive positions or in positions where similar skills cannot be found amongst the local labour force.
All Cyprus resident individuals (local and expatriate) are taxed with the same tax rates on their income arising in Cyprus and abroad. An individual is deemed resident if he lives in Cyprus for one or more periods which exceed 183 days per fiscal year. Non-residents are taxed only on their income arising in Cyprus.

• Taxation of expatriates
  • If employed outside Cyprus, no taxation
  • If employed in Cyprus for 183 days or more, taxed on all income from employment
  • If employed in Cyprus for less than 183 days, taxed in Cyprus on the salary attributable to the employment in Cyprus.

• The following types of income are exempt from taxation
  • Dividends
  • Interest received
  • Profits from the sale of shares
  • Salaried services rendered abroad by a Cyprus resident for a period totaling more than 90 days in a fiscal year to an employer who is not a Cyprus resident or at the permanent establishment abroad of a Cyprus resident

• Special contribution for defence for resident individuals:
  • 30% on interest received either in Cyprus or abroad (was 15% up to 29/04/13).
  • 17% on dividends received either from abroad or in Cyprus (was 20% in 2013).
  • 3% on 75% of rental income from property wherever located.
    
    
• Allowances deductible from income by individuals
  • Social insurance contributions
  • Life insurance premiums
  • Contributions to approved provident funds, pension schemes and medical schemes
  • For an employee who was not a Cyprus resident and is now taking up employment in Cyprus for the first time, a special exemption from income tax will apply for the first three years starting on January 1 following the year in which employment in Cyprus commenced. The exemption amounts to 20% of salaried income up to a maximum annual amount of €8,550.
  • Emoluments received from employment in Cyprus by an individual who was not a resident of Cyprus before taking up employment. This exemption is applicable for a period of 5 years commencing from the year of commencement of employment. Under this exemption, 50% of emoluments which exceed the amount of €100.000 are exempted from income tax.
    
    
• Personal tax rates