Cyprus has established itself as a premier destination for international investment, largely due to its highly favorable tax system which is considered to be one of the most attractive tax regimes within the European Union

A key component of the advantages offered by the tax framework is the country’s extensive network of Double Taxation Treaties (DTTs). Cyprus has successfully negotiated numerous DTTs with foreign countries, attracting interest from 3 different continents (Europe, Asia and Africa), further reinforcing its status as an international investment center.

Double Taxation Treaties (DTTs) are agreements between two countries that help prevent individuals and businesses from being taxed twice on the same income. For instance, some corporations may operate across many jurisdictions, imagine if they had to pay taxes to all of them. Same with individuals, although living in one country, they may earn income in another country, should there be a double tax? This is where DTTs treaties come in the picture. They work by deciding which country has the right to tax specific types of income or capital, making cross-border business more efficient and thus eliminating the risk of double taxation for both corporations and individuals.

One of the primary advantages of DTTs is the reduction of withholding tax rates on dividends paid by a company in one treaty country to a resident of another. Typically, dividends are subject to taxation at both the corporate level and the shareholder level via withholding tax. In the absence of a DTT, these withholding taxes can be substantial, potentially discouraging cross-border investments.

However, many of Cyprus’s DTTs facilitate either a significant reduction or the complete elimination of these taxes, generating considerable savings for shareholders. Notably, Cyprus does not impose withholding tax on dividends distributed to non-resident shareholders, further enhancing its attractiveness as an investment center. Additionally, residents and legal entities in Cyprus receiving foreign dividends may qualify for a tax credit on withholding taxes paid in another (source) country, subject to the provisions outlined in the applicable treaty.

DTTs also play a crucial role in minimizing tax liabilities on cross-border payments of interest and royalties. These types of income are typically taxed in the recipient’s country of residence, yet many treaties allow for a reduction in withholding tax rates imposed by the source country. As a result, such provisions enhance the overall tax efficiency of cross-border lending and intellectual property transactions, making Cyprus an appealing jurisdiction for businesses and investors.

The framework for avoiding double taxation is embedded in Cyprus’s Income Tax Law of 2002 (Law 118(I)/2002), which provides a legal basis for granting relief to taxpayers who have paid foreign taxes in a jurisdiction covered by a DTT. Specifically, Articles 34 and 35 of this law stipulate that tax payers who have already been taxed on income in a foreign jurisdiction may claim a tax credit against their Cypriot tax obligations. If the foreign tax rate exceeds that of Cyprus, the taxpayer can claim credit for the full foreign tax paid. If though, the foreign tax rate is lower, the taxpayer is required to pay the difference in Cyprus. Article 35 also defines “foreign tax” as any levy imposed by a jurisdiction with which Cyprus has a DTT and ensures that any foreign tax credit directly reduces the taxpayer’s liability in Cyprus. Furthermore, in cases where conflicts arise between domestic tax regulations and a DTT, the provisions of the treaty take precedence.

It is crucial to underline the importance of such treaties in order for DTT’s to have an impact. Taking into consideration that only in the case of a signed treaty between Cyprus and other foreign countries, can a party (individual or corporation), benefit from tax obligations, we have identified the countries that have a signed agreement with the republic of Cyprus.

Cyprus has double tax agreements with more than 50 countries and is actively working on expanding this network. While most of these agreements follow the OECD Model Convention, the treaty with the United States is customized to fit US-specific requirements. Some of the countries Cyprus has agreements with include but are not limited to: Austria, Belgium, Germany, France, Greece, Italy, Malta, Poland, the Czech Republic, Russia, Estonia, Canada, Kuwait, Egypt, India, and Qatar.

The full list of countries that have a signed agreement with Cyprus can be found here:

Cyprus’s tax framework also addresses Capital Gains Taxation, particularly concerning the sale of immovable property or shares. The country retains the right to tax capital gains on the sale of immovable property located within its borders, subjecting such transactions to a Capital Gains Tax (CGT) rate of 20%, irrespective of the seller’s residency status. Additionally, CGT applies to the sale of shares in companies holding immovable property in Cyprus, a matter of significant relevance for international investors. Under most DTTs, Cyprus retains taxing rights over capital gains from immovable property transactions within its jurisdiction. However, individuals and entities from treaty countries may be eligible for tax relief under the applicable DTT, ensuring that capital gains taxation does not lead to double taxation.

Cyprus has established its status as a top choice for cross-border business activities and investments. With strong and clear tax rules, like for instance, “The Income Tax Law of 2002”, along with the numerous treaties in place, Cyprus’s reputation as a competitive and investor-friendly jurisdiction has risen. By preventing income from being taxed in both the source country and the country of residence, Cyprus promotes a fair and efficient tax system that promotes international trade and investment.

In conclusion, Cyprus’s legal and tax system, underpinned by its extensive network of DTTs, provides a solid framework for preventing double taxation.

During recent political turbulence and economic instability, the uncertainty of future expectations does not seem to have an immediate impact in Cyprus whose dedication to tax efficiency and legal stability has further reinforced investment interest and has established the island as a worldwide business center.