A company is considered a tax resident of Cyprus if it is managed and controlled from within the country. This typically means board meetings and key decisions must take place in Cyprus. Resident companies benefit from the country’s low corporate tax rate of 12.5%, one of the most competitive in the EU.
Non-resident companies are taxed only on income derived from a permanent establishment in Cyprus and cannot leverage the country’s extensive double tax treaty network.

Profits from the sale of securities such as shares, bonds, and debentures are exempt from taxation in Cyprus. Similarly, dividends received by a Cyprus resident company from foreign entities are usually tax-exempt unless they originate from low-tax jurisdictions or passive investment companies. In cases where dividends do not qualify for exemption, they are subject to a 17% defense tax.

Interest income is taxed differently depending on whether it arises from business activities. Interest from corporate financing, banking, or commercial activities is taxed at the corporate rate of 12,5%, while passive interest (such as deposits or third-party loans) is subject to a 17% defense tax.

Cyprus benefits from EU tax directives, eliminating withholding taxes on dividends, interest, and royalties between associated EU companies. The EU Parent-Subsidiary Directive ensures tax-efficient profit repatriation, and the EU Interest and Royalty Directive enables cross-border payments without additional taxation.

Companies can carry forward tax losses for up to five years, offsetting them against future taxable profits. Group relief allows losses from one Cyprus company to offset profits in another within the same group. Additionally, mergers and reorganizations can be conducted on a tax-neutral basis.