Cyprus Tax Profile: Rates, Residency and VAT Rules

Cyprus is an island nation in the eastern Mediterranean with a population of about 1.4 million people. Geographically part of Western Asia, it is an EU member and therefore aligns politically and culturally with Europe. Over the past two decades its economy has shifted from agriculture to services such as tourism, shipping, finance, and manufacturing of food, paper, chemicals, textiles, metal products and oil refining.

A company is tax‑resident in Cyprus if its management and control are exercised there, or if it is incorporated in Cyprus but managed abroad provided it is not tax‑resident elsewhere. Cyprus follows the worldwide income principle, taxing resident companies at a 12.5 % corporate rate on all global earnings, while non‑residents are taxed only on Cyprus‑sourced income. Individuals become tax residents by staying more than 183 days or by meeting a 60‑day stay, having a permanent home and conducting economic activities; they face progressive income tax and a 17 % Special Defence Contribution (SDC) on passive income such as dividends, interest and rent, subject to specific exemptions.

Value‑added tax (VAT) has been in force since 1 July 1992 with a standard rate of 19 % and reduced rates of 9 %, 5 %, 3 % or 0 % for certain goods and services. Transfer‑pricing rules require arm’s length transactions in line with OECD guidelines, and Cyprus implements the EU Anti‑Tax Avoidance Directive (ATAD), which includes interest limitation, controlled foreign company (CFC) rules and general anti‑avoidance rules (GAAR). With roughly 70 tax treaties, the regime is relevant for international taxpayers operating or investing in Cyprus.