Cyprus Corporate Tax: Understanding the 12.5% Rate

Cyprus has long been recognized as a premier destination for international business, and a key reason for this is its highly attractive tax system. At the heart of this system is a competitive corporate tax rate of **12.5%**, one of the lowest in the European Union. This low rate, combined with a number of significant tax exemptions, makes Cyprus an ideal jurisdiction for a wide range of business activities, from holding companies to trading and professional services. This guide will provide a detailed look at the Cyprus corporate tax system, explaining the 12.5% rate, its benefits, and the key exemptions that make the island a tax-efficient hub for businesses in 2025. For a broader overview of starting a business on the island, you can read our guide on The AI-Powered Marketer: Business Adviser.

1. The 12.5% Corporate Tax Rate Explained

The core of the Cyprus corporate tax system is its flat tax rate of 12.5% on a company's taxable income. This rate is applicable to all resident companies in Cyprus and is a major reason for the island's appeal. A company is considered a tax resident of Cyprus if its management and control are exercised on the island. The tax is calculated on the company's annual profit, and the tax year is the calendar year. This low rate is a huge benefit for companies, as it allows them to retain more of their profits and reinvest them in their business. You can find more information about this in our FAQ Guides section. For a broader perspective on the registration process, you can read our guide on Cyprus Company Registration: A Step-by-Step Guide 2025.

2. Key Tax Exemptions and Benefits

While the 12.5% rate is a major draw, a number of key tax exemptions and benefits make the Cypriot tax system even more attractive. These exemptions are a key factor in making Cyprus a tax-efficient hub for businesses, particularly for international and holding companies.

Dividend Income Exemption

One of the most significant benefits is the full exemption of dividend income. Dividends received by a Cypriot company from other companies, both local and foreign, are generally exempt from corporate tax. This exemption is a major advantage for holding companies and is a key reason why many international corporations choose Cyprus as a base. This exemption is not conditional on the amount of the dividends or the country of origin. You can also explore our business directory for all businesses.

Capital Gains Exemption

Profits from the sale of securities, such as shares, bonds, and other financial instruments, are also exempt from taxation in Cyprus. This exemption applies to both local and foreign securities and is a major draw for investment companies and for those who want to be a part of the finance, banking, and investment section of the island. This is a crucial benefit that makes Cyprus an ideal jurisdiction for a holding company or for a high-net-worth individual looking for a tax-efficient base. You can also find a suitable professional corporate services firm in our directory.

Double Taxation Treaties

Cyprus has signed double taxation treaties with over 60 countries, which prevents a company from being taxed twice on the same income. These treaties are a key factor in making Cyprus an attractive jurisdiction for international business. They provide a clear and predictable tax environment, which is crucial for companies with a global presence. For more on the local business environment, you can check out our guide on Cyprus Company Formation Requirements for Foreigners.

No Withholding Tax

Cyprus does not impose any withholding tax on dividends, interest, or royalties paid to non-resident companies. This is a major benefit for international companies and for those who want to operate in a tax-efficient environment. The absence of a withholding tax makes it a very attractive jurisdiction for a holding company and for those who want to pay dividends to their shareholders. Our guide on Cyprus Shelf Companies provides more detail. You can also get more help on choosing a company name in our guide.

3. Summary of Benefits and Why Cyprus is a Top Choice

The combination of a low corporate tax rate, significant tax exemptions, and a robust legal framework makes Cyprus a top choice for international businesses. The country's strategic location, its status as a full member of the European Union, and its well-educated workforce further add to its appeal. For entrepreneurs and companies seeking a tax-efficient and business-friendly environment, Cyprus offers a compelling proposition. For a deeper look at the local life, you can explore our guide on Cyprus for Expats. You can also explore our directory of accounting and auditing firms.