Cyprus holds a number of tax planning opportunities for EU companies. An important attraction for overseas businesses is the treatment of dividends received from abroad.
Dividends received from a company located in Cyprus or abroad are fully exempt from Cypriot corporation tax.
The dividends received are also exempt from the Special Contribution for the Defence (‘SDC’). However, the exemption from SDC is not available where:
- more than 50% of the payer company’s activities result directly or indirectly in investment income; and
- the foreign tax burden on the income of the payer company is significantly lower than in Cyprus (normally this means the foreign tax burden is below 5%).
When the exemption does not apply, the dividend income is subject to SDC at the rate of 17%.
Also, there are exemptions from Cypriot capital gains tax on the sale of shares in an overseas company, provided certain conditions are met.