CYPRUS Law and Practice Contributed by: Stella Strati, Patrikios Legal
4. Taxation of Inbound Investments 4.1 Application of Withholding Taxes Cyprus does not apply any withholding tax on divi - dends or interest paid to non-residents (or to Cyprus tax residents who are non-domiciled). Regarding the payment of royalties to a non-Cyprus tax resident, a maximum 10% withholding tax applies on the gross amount of such payment if the royalty rights were used in Cyprus (5% in relation to films). Also, in relation to dividends, interest and royalties paid to entities incorporated in another EU member state, the provisions of the relevant EU Directives apply. Furthermore, the gross income derived by an individ - ual who is not a tax resident in Cyprus from the exer - cise in Cyprus of any profession or public entertain - ment is subject to a maximum withholding tax of 10% (reduced by any DTT favourable rate). The obligation to withhold the tax lies on the Cyprus tax-resident person that has invited the non-resident professional/ entertainer. The maximum withholding tax for services regard - ing the exploration, extraction or exploitation of the continental shelf – as well as the establishment and use of pipelines and other installations on the ground, seabed and/or the surface of the sea – is 5%. Also, no withholding tax applies on any outgoing divi - dend or other profit distributions or interest, irrespec - tive of the existence of a DTT. Furthermore, profits aris - ing from the disposal of titles (shares) are tax-exempt. Non-Cyprus tax residents or non-domiciled Cyprus tax residents who are shareholders of a Cyprus com - pany are not subject to any SDC. Since 31 December 2022, Cyprus has applied with - holding tax on certain outbound payments of divi - dends, interest and royalties – subject to specific conditions – in cases where the recipient is a legal entity that has tax residency in a jurisdiction included in the EU list of non-co-operative jurisdictions, or is incorporated there but not a tax resident in any other jurisdiction.
3.2 Individual and Corporate Rates The corporate and individual tax rates are included in 1.4 Applicable Corporate and Individual Tax Rates . No particular rules exist to prevent individual pro - fessionals from earning income at corporate rates. Such professionals have the right to incorporate legal entities and conduct their business through them. If income is earned through such companies, it is taxed at the corporate tax rate. If the individual conducts business in their name, such individual is taxed at individual rates. For specific professions (eg, advocates and doctors), an authorisation from the relevant regulator (eg, the Legal Council) is required prior to the incorporation of a special purpose company (such as a lawyers’ limited company). 3.3 Restrictions on Retention of Earnings by Closely Held Corporations Currently, there are no rules to prevent a Cyprus com - pany from accumulating earnings. The deemed dividend distribution rules have been abolished as from 1 January 2026. 3.4 Taxation of Individuals on Shares in Closely Held Corporations The gains on the sale of shares are exempt from any taxation in Cyprus. Dividends received by individuals (resident and domiciled in Cyprus) are not subject to income tax but are subject to an SDC rate of 5%. A natural person who is a Cyprus tax resident but non- domiciled in Cyprus is exempt from the obligation to pay the SDC. This also applies to individuals who are foreign tax residents. 3.5 Taxation of Individuals on Shares in Public Corporations The same rules apply as for the taxation of individuals on shares in private corporations.
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