An offshore company in Cyprus: taxation and reporting requirements

Special legislative acts regulate the activities of offshore companies registered in Cyprus. Payment of taxes and submission of financial reports are necessary conditions of doing business in the country. It is important to realize, however, that the requirements are different depending on the company status. If a foreign company registered in Cyprus has a resident company status, it is subject to one set of taxes. If it is a non-resident company, it is subject to another set of taxes.

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Taxation specifics in Cyprus

The corporate profit tax rate in Cyprus is 12.5%. Companies that are tax residents of the country including foreign companies registered in Cyprus are taxable regardless of the geography of their business activities and profit acquisition. Currently, Cyprus has 65 treaties on double taxation avoidance with other countries, which helps its resident companies pay less in taxes.

Non-resident companies in Cyprus are taxable only on the profit that they make on the territory of the country. If any income is obtained outside Cyprus, it is not taxable in the country. Non-residents also do not have to pay taxes on dividends, interests, and royalties. Income obtained from sale of shares, derivatives, and other securities is also untaxable. The exception is sale of non-registered shares by a non-resident who owns real property in Cyprus.  

Other taxation-related specifics include the following ones:

  • If a resident company transfers profit to a foreign company, no tax is due;
  • The parent resident company is exempt from the tax on profit that has been received by its Cyprus-registered subsidiary. However, the dividend obtained from the subsidiary are taxed at 15% (the so-called ‘defense tax’ is levied);
  • No defense tax is levied on the dividends that are transferred from a non-resident company to a resident one and if the ownership share og the latter one in the former one exceeds 1%;
  • The VAT rate in Cyprus is 19%, but it can be reduced to 9%, 5%, and even 0% under certain conditions;
  • Shipping companies are not taxed in Cyprus and neither are the payments to the ship crews.

Taxable companies in Cyprus shall pay the taxes before the following dates:

  • June 30 — defense tax for the first six months of the current year;  ;
  • August 1 – prepaid profit tax for the current year; ultimate profit tax for the previous year;
  • September 30 – prepaid profit tax for the current year; property tax for the previous year;
  • December 31 — final payment of prepaid profit tax; defense tax for the last six months of the current year.

Besides, before the 10th of the following months, the VAT for the last month had to be paid if it is due.

Violations of the terms of tax payments will lead to fines, legal action, and business liquidation.

Reporting requirements in Cyprus

All companies registered in Cyprus shall submit the following types of reports on the set dates:

  • Financial reports. These reports are to be submitted at the end of fiscal year to the Revenue Department and Registrar of Companies whether the company has been engaged in business activities over the year or not. They are submitted together with the auditor’s report (a physical person or a legal entity can act as an auditor; both shall have valid audit certificates) and minutes of the annual meeting. The fiscal year ends on December 31 in Cyprus. If the company has been registered in the country after July 1, reporting for 1 year and six months is submitted. If the reports are not submitted on time, the company will face a 17,000-euro fine and legal action may be taken against the company official responsible for submitting financial reports. The reports shall be made in the Greek language.  
  • Tax reports. Tax reports are submitted to the Revenue Department within six months after the end of the reporting period. The reports contain information about the company profits (expected and received). Late submission of tax reports may entail a fine and even the deletion of the company from the register.
  • Annual reports. These are submitted to the Registrar of Companies together with copies of financial reports and auditor’s report. In accordance with the Cypriot legislation, all companies in the country shall keep the books that shall reflect all the money flows (incoming and outgoing payments), company assets and liabilities, sales, purchases, and so on. Accounts shall be kept in accordance with the international standards. The Annual Return shall contain information about the company directors, shareholders, secretary, charter capital, shares, offices, and other data including the information about any changes that have occurred over the year. If annual reports are not submitted on time, the company can be scratched off the register.

Establishing an offshore company in Cyprus can be a lucrative option for a foreign investor who knows the local laws. Many entrepreneurs from different countries of the world have already availed themselves of this opportunity. Offshore Pro Group specializes in foreign company formation and we will gladly help you set one up in Cyprus. Please apply for our consultations via email, WhatsApp or live chat. We are always eager to be of assistance.

What laws regulate the activities of the companies registered in Cyprus?

The main legislative act that regulates the activities of commercial companies in the country is the Cyprus Companies Law, Chapter 113. It defines the methods of company registration, operation, and liquidation. Other relevant legislative acts include the laws ‘On profit tax’, ‘On income tax’, ‘On defense tax’, ‘On capital gains tax’, and others.

What taxes do non-resident companies not have to pay in Cyprus?

Non-resident companies are not taxed on the incomes derived from business operations abroad, outside Cyprus. There are also no dividend, interest, share, derivative, and security taxes. Royalties are not taxed either if the intellectual rights are used abroad.

What reports do Cypriot companies have to submit?

Regardless of the residency status, all Cypriot-registered companies shall submit the following reports:
Annual Return – to the Registrar of Companies;
Financial report in Greek – to Registrar of Companies;
Financial reports to the Inland Revenue Department.
There are specifics of report submission that you should know in order to avoid fines and legal action against your business. 

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