Cyprus offers one of the most efficient tax regimes in Europe and has an extensive network of double taxation treaties (DTTs) with 68 countries. A member state of the European Union since 2004 and of the Eurozone since 2008, with a legislative framework which is in full compliance with EU’s tax norms, abiding to the globally acceptable standards and to the applicable transparency requirements.

Cyprus was an early adopter of the OECD Common Reporting Standard (CRS), which calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis, as well as being FATCA- compliant. Moreover, it is adhering to the EU rules on administrative cooperation and the automatic exchange of information.

The above is combined with a broad spectrum of tax efficient provisions, including but not limited to one of the lowest corporate tax rates in the EU at 12.5%. This combination, places Cyprus high on the list of suitable jurisdictions for international tax optimisation.

The island is also increasingly becoming a destination of choice within the EU for fund managers and fund management companies thanks to the following advantages:

• option for fund managers and other key executives to be taxed at a flat rate of 8% on variable employment remuneration, which is effectively connected to the carried interest, subject to certain conditions
• exemptions for up to 50% of taxable income derived from emoluments exceeding €55,000 for up to 17 years that take on Cyprus-based employment after 1 January 2022
• tax residency for individuals based on a 60-day rule, subject to certain conditions
• a ‘non-dom’ regime whereby exemptions apply for dividend, interest or rental income for tax resident individuals who are not considered as ‘domiciled’ for tax purposes in Cyprus
• a general exemption on gains from trading in a wide range of securities including shares and units of investment funds, with no holding period or ownership threshold requirements
• a notional deduction on corporate equity, the so-called Notional Interest Deduction (NID)
• tax efficient profit repatriation due to the absence of withholding taxes on dividend and interest (unless recipient is in a non-cooperative jurisdiction)
• 12.5% cap on corporate tax, amongst the lowest in the European Union
• substantially lower operating costs than comparable EU fund centres

Within the context of modernising its tax system, the Cyprus’ tax regime further provides for specific tax efficient solutions that facilitate the set up and operation of funds and fund management companies. These provisions include:

• interest received by open and closed end collective investment schemes is considered ‘active’ interest income and taxed only at 12.5% corporate tax (no defence tax)
• no minimum participation or holding period on inbound dividends to qualify for tax exemption
• the liquidation of open and closed end collective schemes does not create tax implications for unit holders that are not tax residents of Cyprus
• no permanent establishment would be created in Cyprus where a non-Cyprus resident investor invests in a Cyprus tax-transparent investment fund; and a non-Cyprus investment fund is managed from Cyprus
• each compartment of an investment fund (AIF or UCITS), although legally is not treated as a separate entity, for tax purposes, would be treated as a separate person (i.e. separate taxpayer)
• certain employees who were non-Cyprus tax resident prior to their employment in Cyprus with an investment fund management company or an internally managed investment fund the option to be taxed at a flat rate of 8% instead of the normal personal income tax rates ranging from nil to 35%. The variable remuneration of these employees, which is effectively connected to the carried interest of the fund managing entity, may be taxed at the rate of 8%, with a minimum tax liability of €10,000 per annum, subject to certain conditions. Such employees have the option to be taxed at 8% for a 10-year period, commencing from the year of employment. For individuals that are eligible and elect to be taxed under this option, the personal income tax rates of up to 35% and the other available exemptions applying to personal income will not apply.

Investor Taxation 

Non-resident investors 

• no withholding tax on dividends
• no taxation on redemption of units
• no deemed distribution restrictions
  

Resident investors – Domiciled 

• a withholding tax on dividends of 17% if the investor is an individual who is both tax resident and domiciled in Cyprus
• no taxation on redemption of units
• no withholding tax if investor is a company

 Resident investors – Non-Domiciled 

• exemption from withholding tax on dividends of 17%
• no taxation on redemption of units
• no withholding tax if investor is a company

Fund Taxation 

• any gains from trading in securities, including shares and units, are tax exempt
• Notional Interest Deduction (NID) for new equity may reduce taxable base for interest received by up to 80% (for company-type funds) reducing the effective tax on interest to 2.5%
• dividends received by Cypriot funds are generally exempt, without any minimum ownership or holding period requirement
• capital gains arising from sale of property abroad as well as capital gains from sale of shares of foreign property companies are exempt from tax
• no subscription tax on the net assets of the fund
• fund management services provided to alternative funds are not subject to VAT

Double Tax Treaties 

Cyprus has in place Double Taxation Treaties (DTTs) with 68 countries, which may eliminate double taxation and provide for further tax advantages.

Read the 2024-2025 CIFA Investment Funds Guide

November 2024