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Special Modes Of Taxation

Controlled Foreign Companies (CFCs)

The non-distributable income of a Controlled Foreign Company (CFC) or of a foreign permanent establishment arising from non-genuine arrangements which are controlled by the controlling company resident in the Republic, is added to the taxable income of the controlling company resident in the Republic, subject to certain exceptions

Any foreign tax paid on the income of the CFC is credited against income tax payable in the Republic.

Insurance Companies

Insurance companies are generally taxable in the same way as all other companies. In the case where there is no tax payable or where the tax payable on the taxable income of the life business is less than 1,5% of the gross insurance premiums, then the insurance company pays the difference as additional tax.

Pension Income from Services Rendered Abroad

The pension income of any individual resident in the Republic, which arises from services rendered abroad, is taxed at a rate of 5% for amounts exceeding €3.420 per annum. The taxpayer has the right to choose to be taxed either under the special mode of taxation as stated above or under the personal income tax rates. If the latter is chosen, the pension is added to the individual’s aggregate taxable income.

Widow’s Pension

The total amount of widow’s pension received from the Social Insurance Fund and/or other approved pension funds is taxed at the flat rate of 20% on amounts exceeding €19.500. The taxpayer can however elect to be taxed in accordance with the personal income tax rates.

Variable Remuneration of Individuals Employed in the Funds Industry

The variable remuneration of employees of:

– an Alternative Investment Fund (AIF) Manager or self-managed AIF, or

– a Management company for Collective Investments in Transferable Securities (UCITS), which is connected to the carried interest, is taxed at the flat rate of 8% with a minimum tax liability of €10.000 per annum (subject to conditions). Qualifying employees can elect to be taxed under this special mode of taxation on an annual basis for a 10-year period or otherwise be taxed in accordance with the personal income tax rates.

Income Arising from Intellectual Property Rights etc.

The gross income arising from intellectual property rights, other exploitation rights, compensations or other similar income arising from sources within the Republic – of a person who is not resident in the Republic and does not arise from a permanent establishment in the Republic – is subject to withholding tax at a rate of 10% (unless a tax treaty provides for a lower tax rate). Royalties received by a connected company registered in a European Union Member State are exempt from withholding tax (subject to conditions). Rights granted for use outside the Republic are not subject to any withholding tax.

Film Royalties etc.

The gross income derived by a non-resident person in respect to royalties arising from film projection in the Republic is subject to withholding tax at a rate of 5% (unless a tax treaty provides for a lower tax rate).

Royalties received by a connected company registered in a European Union Member State are exempt from withholding tax (subject to conditions).

Profits of Professionals / Entertainers etc.

The gross income derived by an individual not resident in the Republic from the exercise in the Republic of any profession or vocation, the remuneration of public entertainers not resident in the Republic and the gross receipts of any theatrical or musical or other group of public entertainers, including football clubs and other athletic missions from abroad, derived from performances in the Republic is subject to a 10% withholding tax (unless a tax treaty provides for a lower tax rate).

Income from Oil & Gas Related Activities

The gross amount or other income derived from sources within the Republic by any person who is not a resident in the Republic, which does not arise from a permanent establishment in the Republic, as consideration for services carried out in the Republic with respect to the extraction, exploration or exploitation of the continental shelf, subsoil or natural resources, as well as the installation and exploitation of pipelines and other installations on the ground, the seabed or above the surface of the sea, is subject to tax at the rate of 5% (unless a tax treaty provides for a lower tax rate).

Income from Technical Assistance

The gross income arising from sources within the Republic, as consideration for technical assistance provided by any person who is not a resident in the Republic, is subject to a 10% withholding tax. Such income is exempt from withholding tax if the services are provided by a permanent establishment in Cyprus.

Payment of Tax Withheld

Tax withheld on payments to non-Cypriot residents should be paid to the Tax Department by the end of the following month.

In cases where the tax withheld is not paid within the deadline, an additional penalty of 5% is imposed on the tax withheld in addition to any interest that may be imposed.

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