CYPRUS Law and Practice Contributed by: Stella Strati, Patrikios Legal
has exhausted all means of surrendering or carrying forward the losses in its own state. 2.5 Deduction of Interest The Cyprus Income Tax Law provides that any inter - est relating to (or that is deemed to relate to) the cost of acquiring a private motor vehicle – irrespective of whether it is used in the business – or to the cost of acquiring any other asset not used in the business is not deductible. The Commissioner of Taxation has taken the position that shares are not an asset used in the business and, as such, any interest on loans to acquire shares is not deductible for a seven-year period. This position is justified on the grounds that any income from the holding of shares (ie, dividends and capital gains) is exempt from corporation tax. As of 1 January 2012, the above-mentioned provi - sion does not apply in cases where new shares are acquired directly or indirectly in a wholly owned sub - sidiary – provided that this subsidiary does not own any assets that are not used in the business. If this subsidiary owns assets that are not used in the busi- ness, the restriction of interest will only correspond to the percentage of assets not used in the business. Also, from 1 January 2020, Cyprus’ tax legislation contains an interest limitation rule (ILR) that limits the otherwise deductible-exceeding borrowing costs of the Cypriot taxpayer/Cypriot group to 30% of adjust - ed taxable profit (taxable EBITDA). The ILR contains an annual EUR3 million safe harbour threshold. 2.6 Consolidated Tax Grouping No rules for tax grouping exist, apart from the basic rules for group tax relief described in 2.4 Loss Relief . 2.7 Capital Gains In Cyprus, no capital gains tax exists, apart from the taxation of gains arising from the disposal of immov - able property situated in Cyprus. The profits from the sale of shares are exempt from any taxation. Capital gains tax applies only to direct and indirect disposals of real estate situated in Cyprus. The appli - cable rate is 20% and is applied on gains from the
disposal of immovable property or gains from the dis - posal of shares that directly or indirectly own immov - able property situated in Cyprus. 2.8 Other Taxes on Transactions Pursuant to the tax reform that was approved by the Cyprus parliament in December 2025, stamp duty fee has been abolished as from 1 January 2026. 2.9 Other Notable Taxes VAT Incorporated businesses may be subject to VAT. The standard rate of VAT is 19%; however, reduced rates The SDC is payable on passive income – namely, divi - dends, and passive interest income – by Cyprus tax- resident companies and individuals who are both tax residents and domiciled in Cyprus. SDC on rents has been abolished as of 1 January 2026. Dividends received by individuals (resident and domi - ciled in Cyprus) are subject to an SDC rate of 5%. Dividends received by Cyprus tax-resident compa - nies are not subject to the SDC (subject to specific exceptions mentioned in 6.3 Dividends From Foreign Subsidiaries ). The SDC rate on interest for both natural and legal persons is 17% as of 1 January 2024. of 5% and 9% apply to certain supplies. Special Defence Contribution (SDC) 3. Corporations and Non-Corporate Businesses 3.1 Form of Closely Held Local Businesses Closely held local businesses usually operate in cor - porate form – namely, as private limited liability com - panies with shares. The main reason for this is the lower corporate tax rate compared with the tax rates applicable to individuals or with the tax treatment of partnerships.
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