CYPRUS BECOMES A FULLY COMPLIANT CORPORATE TAX RATE JURISDICTION ATTRACTING MULTINATIONAL COMPANIES FOR HEADQUARTERING OR BRANCH SET UP

In December 2021 the Cyprus Minister of Finance has announced that the year of 2022 will be a year of tax changes.

For starters, the corporate tax rate increases from 12.5% to 15%. But we can revisit this matter a bit later in this article.

A very interesting and useful tax inventive promoted is the advanced tax deduction on scientific research:

• For expenses incurred for the purposes of scientific research, during the next three years, an additional deduction will be granted, which will be equal to 20% of these expenses. The same will apply to research and development expenditure. Therefore for every € 1 spent, there will be a tax deduction of € 1.20.
• 50% tax exemption for new residents / employees, who will receive salaries over € 55,000 per year (currently the limit is € 100,000). Existing beneficiaries of the measure will be able to extend the benefit from 10 to 17 years. Potential tax residencies taking advantage of this benefit will be individuals with incomes ranging from € 55,000 to € 100,000 per year for the remaining period of 17 years.

The downside: 

It should be considered as a “done deal” the fact that the Corporate Tax rate increases from 12.5% to 15%!

The OECD has not allowed any other room for delay. The last time this was about to happen was back in 2019.

Why this is not so bad for both DOMICILE taxpayers and NON-DOMICILE tax payers.

DOMICILE TAXPAYERS ONLY:

• The percentage contribution is set to deop from 17% to 10%.
• This will only apply to shareholders who are tax residents and of course DOMICILE in Cyprus.

A brief working explains below the net TAX for DOMICILE CYPRUS TAX RESDIENTS:

As you can see from the above the difference is marginal

*The Company is eligible to distribute more than 70% of its profits as dividends.

*The above defence tax does not apply to non-domicile tax residents of Cyprus.

NON-DOMICILE TAX PAYERS;

The non-domicile tax payers may take a slight hit on the increase of Corporate Tax rate equal to 2.5% (from 12,5% to 15%).

However, the existing incentives in place such as the IP BOX, the above 2 incentives of 12.5% deduction of expenses on scientific research and research and development expenses along with the 50% for incomes over EUR 55,000 for new employees attract multinational businesses for headquartering or setting up a branch in Cyprus.

WHAT WE HAVE ALL BEEN WAITING FOR:

The €350 Annual Corporate Levy will either be abandoned in full or decreased substantially!!

The fee introduced in 2011 is something that business owners and organized professional have been obeying for its abolishment for the last few years.

It seems this time has come or at least it will be decreased to an amount small enough to stop arguing about it!