Cyprus has long attracted international business with its competitive 12.5% corporate income tax rate — the joint-lowest in the EU alongside Ireland. But the headline rate is only part of the story. Understanding what income is subject to tax, what can be deducted, and what special regimes apply is essential for effective tax planning.
What is Taxable Income?
Cypriot-registered companies are taxed on their worldwide income. Foreign-registered companies with a permanent establishment in Cyprus are taxed only on Cyprus-sourced income. Taxable profit is broadly computed as revenue minus allowable deductions — including depreciation, interest on qualifying loans, and business expenses wholly incurred for the production of income.
Key Exemptions
Cyprus offers a number of significant exemptions: - Dividends received from subsidiaries are generally exempt from corporation tax (and from Special Defence Contribution if certain conditions are met). - Profits from the disposal of qualifying securities (shares, bonds, debentures) are fully exempt. - Profits attributable to a permanent establishment abroad are exempt (subject to conditions). - The Notional Interest Deduction (NID) allows companies to claim a tax deduction on new equity introduced into the business.
The IP Box Regime
Cyprus's Intellectual Property (IP) Box regime taxes qualifying IP income at an effective rate of just 2.5%. This makes Cyprus particularly attractive for technology, pharmaceutical, and creative businesses with patentable or eligible IP assets.
Practical Planning Points
Effective planning starts early — ideally at company formation stage. Structuring holding arrangements, optimising intra-group financing, and making use of Cyprus's network of 65+ double tax treaties can significantly reduce overall tax leakage. Our team can help you model the tax impact of different structures before you commit.
This article provides general information only and should not be relied upon as tax advice. Please contact our office for advice tailored to your specific circumstances.
