All companies tax resident in Cyprus are taxed at 10% (12,5% from 1 January 2013) on their profits accrued or derived from all sources both in Cyprus and abroad. A company is tax resident in Cyprus if it is managed and controlled from Cyprus.
The following types of income are exempt for corporation tax:
- Profits from the disposal of securities
- Dividend income
- Interest not arising from the ordinary activities or closely related to the ordinary activities of the company (taxed only under Special Defence Contribution Tax – see below)
- Income from I.P. (Intellectual Property). Effective tax rate as low as 2%.
Special Defence Contribution
Special contribution for defence is in some cases imposed on dividend, rent and interest income earned by Cyprus tax residents. More specifically:
- Dividend income received from non-Cyprus resident Companies are taxed under special defence contribution at the rate of 20% for the years 2012 and 2013 and 17% for the year 2014 onwards , if and only if, more than 50% of the activities of the company paying the dividend result directly or indirectly from investment income and the foreign tax is significantly lower clarified by the tax authorities to mean below 5% than the tax burden in Cyprus.
- Rental income is subject to Special Defence Contribution at the effective rate of 2,25%.
- Other interest income from passive activities is subject to 15% (30% from 29 April 2013) special defence contribution. Non-tax residents are exempt from special contribution for defence.