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.

A company is considered tax resident in Cyprus if its management and control is exercised from Cyprus.

The meaning of “management and control” is derived mainly from tax case law. Central management and control typically means the highest level of control of the business of the company, i.e. key strategic decisions.  It is largely determined by the facts, focusing particularly on whether those who are legally entrusted to exercise the management and control of the company in fact do so from Cyprus.

Central management and control is particularly important where external jurisdictions are involved and where there is potential risk of residence claim from another jurisdiction. Therefore, care needs to be taken to ensure that measures are in place to demonstrate that Cyprus is the place of central management and control for a Cypriot company.