Setting up a business in Cyprus

As an EU and Eurozone member, Cyprus can be a convenient gateway to Europe for investors and businesses by offering direct access to the European single market, enabling the free movement of goods, services, people and capital. Products manufactured or traded by companies based in Cyprus can circulate throughout the European Union without customs duties, quotas or other trade barriers. This is particularly valuable for manufacturing, tech hardware and e-commerce businesses seeking to distribute across Europe from a single hub.

In addition, EU citizens employed by a Cyprus-based company can work, live or be deployed in other EU countries without needing a visa or work permit, allowing easy personnel flows and intra-group relocations or resource sharing for companies operating across multiple markets. It also allows easy recruitment and talent attraction from a major employment pool without immigration barriers. In terms of free movement of capital, businesses benefit from unrestricted transfers of funds, dividends and other financial assets across the EU. This facilitates investment, group financing, treasury functions and shareholder returns without additional withholding taxes or restrictions within the EU. In addition to the above, Cyprus also benefits from the provisions of the Parent-Subsidiary Directive, which eliminates tax waste on dividend flows between related companies across the EU. Coupled with Cyprus’ own dividend rules that exempt dividend flows from Cyprus to any third country, it allows Cyprus-based companies to efficiently repatriate profits to EU parent entities or shareholders or conversely receive dividends from EU-based subsidiaries without the burden of withholding taxes. Taken together, these freedoms make Cyprus not just a tax-efficient or strategically located jurisdiction but a fully integrated operational base within the European Union.

An Attractive and Competitive Corporate Tax System

Cyprus offers a competitive and transparent tax regime. The corporate income tax rate currently stands at just 12.5%, making it one of the lowest in the European Union. There is ongoing discussion to increase the corporate income tax rate to 15% to meet OECD global tax recommendations, with the increase to be offset by other tax reductions. Nonetheless, for companies engaged in research, development and innovation, the IP Box regime may reduce the effective tax rate to 2.5% on qualifying income from intellectual property. Additional highlights include no capital gains tax on the disposal of assets other than real estate located in Cyprus, a competitive VAT rate (19%), no inheritance and wealth tax, profit (gain) from the sale of shares, corporate titles, bonds, or debentures is exempt from profit tax (capital gains tax is n/a) and foreign dividend income is typically tax-exempt for Cyprus tax-resident companies (anti-avoidance provisions apply).

The Personal Income Tax/Non-Dom Regime

Generally, Cypriot tax residents are subject to personal income tax on worldwide income – it follows a sliding scale, with the highest bracket being 35% for income over €60,000. However, recently domiciled and tax-resident individuals can qualify for Non-Domiciled status. A Non-Dom individual is exempt from tax on dividends and interest income, even if these are earned from sources within Cyprus. This exemption applies for 17 years from becoming a Cyprus tax resident, regardless of the individual’s global income or asset base. In addition, individuals who move to Cyprus can qualify for a 50% exemption on remuneration when their annual salary exceeds €55,000. Social and medical insurance-related taxation is in the region of 18% (including employer contributions).

Easy Business Setup

In line with the above, Cyprus has been proactive, introducing additional incentives to encourage foreign investment, facilitating headquartering in sectors such as technology, asset management, investment funds, higher education, shipping and the film industry while, at the same time, providing a straightforward and easy company registration process with one-stop shops, streamlined processes and digital portals. Cyprus’ corporate legislation ensures streamlined, fast and straightforward processes for starting a business. There are also minimal requirements for setting up a business, such as just one shareholder and one director, who can be residents of any country.

For shipping-related matters, key features of Cyprus’ shipping framework include no fees imposed for the registration of ocean-going commercial Cyprus ships and mortgages, no nationality restrictions for seafarers, more than 28 Merchant Shipping Bilateral Agreements and a competitive tonnage tax system (TTS), compatible with the EU acquis. The Cypriot TTS is applicable to ship owners, charterers and ship managers. Those eligible can opt to be taxed under the TTS and be subject to an annual tonnage tax calculated based on the net tonnage of the qualifying ships they own, charter or manage. The main benefit of the TTS is that the tax burden related to the vessel is known (depending on the tonnage of the vessels) and does not fluctuate with the levels of income or profit. Furthermore, the Shipping Deputy Ministry has launched a One-Stop Shipping Centre with the primary goal of consolidating all shipping-related matters currently handled by other government departments under its own management.

A Safe and Secure Environment

Cyprus has a robust legal system based on English common law and consistently ranks as one of the safest countries in Europe in terms of crime statistics. Indeed, the 2024 Global Finance Magazine edition ranks Cyprus 13th on its ‘Safest Countries in the World’ list. Being a small, family-focused Mediterranean country, it provides a secure and family-friendly environment with a relatively good educational system that includes numerous private schools offering high-quality primary and secondary education, mainly in English. There are also various private Universities and higher education institutions with English language courses. Cyprus offers a compelling mix of advantages for businesses considering international expansion or relocation. Its EU membership, competitive tax rates, incentives for the relocation of individuals, strategic location and the easiness of setting up a business, together with the safe and family-friendly environment make it a competitive and attractive jurisdiction.

• By Kyriacos Scordis, Managing Partner, Scordis, Papapetrou & Co LLC

This article was first published in the special publication Doing Business in Cyprus. To view it, click here. To read the entire publication, click here.