Why Cyprus for Indian Businesses
- EU Member State with Common Law tradition
Stable legal environment based on English Common Law, full access to the EU single market and EU directives. - Competitive and predictable corporate tax regime
Current corporate income tax rate of 15% on taxable profits (the tax regime remains internationally competitive). - Extensive double tax treaty network, including India
The Cyprus–India Double Tax Treaty helps avoid double taxation and provides clarity on the allocation of taxing rights between the two states. - Attractive participation and IP regimes
- Broad participation exemption on most dividends and on gains from disposal of “titles” (shares, bonds, etc.) under conditions.
- IP box regime with an effective tax rate that can be reduced to approximately 3% on qualifying IP profits (subject to the OECD “nexus” approach).
- Flexible holding, financing and licensing structures
- No withholding tax on dividends and most royalties paid to non-residents (with limited exceptions).
- Possibility to use Notional Interest Deduction (NID) on new equity to reduce the effective tax rate further, where appropriate.
- Favourable regime for foreign owners and key employees
- “Non-dom” status can eliminate Special Defence Contribution (SDC) on dividends and interest for up to 17 years for qualifying individuals.
- Up to 50% income tax exemption for qualifying first employment in Cyprus (for senior executives with income above €55,000 and subject to conditions).
Our firm can help you design a structure that uses these rules efficiently, while remaining fully compliant with both Cyprus and Indian tax laws.
Corporate Taxation in Cyprus – Overview
2.1 Tax residency and scope
- A company is generally tax resident in Cyprus if its management and control are exercised in Cyprus (board composition, decision-making, place of management, etc.).
- Cyprus tax-resident companies are taxed on their worldwide income.
- Non-resident companies are taxed only on income sourced in Cyprus (e.g. a permanent establishment in Cyprus).
2.2 Corporate Income Tax (CIT)
- From 2026: 15% for financial years beginning on or after 1 January 2026, based on tax reform.
- Taxable profit is calculated after deduction of allowable expenses, capital allowances, and incentives (e.g. NID, IP regime).
Key exemptions commonly relevant to international structures:
- Dividend income from participations – generally exempt from CIT (and often from SDC) where participation conditions are met (e.g. non-portfolio nature, adequate taxation at source, etc.).
- Profits from sale of “titles” (e.g. shares in subsidiaries) – generally exempt from CIT, making Cyprus very attractive as a holding jurisdiction (excluding sale of shares in Companies holding immovable property).
Foreign permanent establishment profits – may be exempt under conditions
Tax Incentives – IP Box and Notional Interest Deduction
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3.1 IP Box Regime
- 80% deduction on “qualifying profits” from qualifying IP (patents, copyrighted software, certain other intangibles developed via R&D).
- Only 20% of such profits is taxed, so at a 15% corporate tax rate, the effective tax rate can be as low as c. 3% on IP-derived income.
- The regime follows the OECD modified nexus approach; the level of benefit depends on where the R&D is performed and who bears the costs.
This is highly relevant for:
- Software and tech companies
- R&D-intensive businesses
- Companies with registered patents or proprietary technologies
3.2 Notional Interest Deduction (NID)
- Cyprus allows a notional interest deduction on new equity (share capital or share premium) used in the business.
- The notional interest rate is based on the 10-year government bond yield of the country where the equity is employed, plus 5%, and is capped to 80% of taxable profits arising from that equity.
- Practically, NID can significantly reduce the effective tax rate, especially for holding/financing structures funded by equity rather than debt.
IP Box and NID can often be combined but must be modelled carefully.
Withholding Taxes (Outbound from Cyprus)
For non-resident recipients (including Indian companies/individuals), Cyprus currently applies:
- Dividends: No withholding tax (Special rules apply for low tax and non-cooperative jurisdictions).
- Royalties: No withholding tax where the royalty relates to rights used outside Cyprus. Where IP is used in Cyprus, a 10% WHT may apply (subject to treaty relief).
The Cyprus–India Double Tax Treaty may also reduce or clarify source-state withholding on certain income flows.
Indirect Tax – VAT
- Standard VAT rate: 19%.
- Reduced rates: 9%, 5%, and 0% for specific goods and services (e.g. accommodation, certain food, medicines, etc.).
- VAT registration is generally required if taxable supplies in Cyprus exceed the registration threshold (or for certain cross-border services).
For international structures, VAT impact depends on:
- Place of supply of services,
- Whether the customers are B2B or B2C,
- Type of activity (financial services, digital services, etc.).
In many B2B cross-border service scenarios, Cyprus entities may act as VAT-registered but largely VAT-neutral (charging VAT only where required and recovering input VAT on costs).
Taxation of Shareholders and Key Employees
6.1 Special Defence Contribution (SDC) and non-dom regime
- SDC applies mainly to Cyprus tax-resident and domiciled persons on certain passive income:
- Dividends,
- Interest,
- Individuals who are Cyprus-tax-resident but “non-domiciled” are generally exempt from SDC on dividends and interest (and on the SDC portion of rental income) for up to 17 years (special rules apply to extent this period).
This is particularly attractive for foreign shareholders and high-net-worth individuals relocating to Cyprus.
6.2 Personal income tax and expatriate reliefs
- Cyprus has progressive personal income tax rates up to 35%, but with generous exemptions and deductions.
- For foreign executives relocating to Cyprus, there are two main incentives (subject to conditions):
- 50% exemption on employment income for “first employment” in Cyprus where annual remuneration exceeds €55,000 and the individual was non-resident for at least 15 consecutive years before starting work in Cyprus. The exemption is available for up to 17 tax years.
- A 20% exemption (capped at €8,550) for qualifying individuals with lower income levels, for up to 7 years.
6.3 Social Insurance and General Healthcare System (GHS)
- Employer and employee both contribute to social insurance and the General Healthcare System (GHS) on employment income, up to specific income caps.
- These contributions fund pensions, unemployment, and healthcare within Cyprus.
We would typically prepare detailed cost-of-employment calculations for any key Indian executives you plan to relocate to Cyprus.
Compliance, Substance and Indian Tax Considerations
- While Cyprus offers an attractive framework, it is essential to:
- Ensure real substance in Cyprus (board meetings, decision-making, office presence, key people) to support tax residency and treaty access.
- Consider Indian tax rules, including Place of Effective Management (POEM), General Anti-Avoidance Rules (GAAR) and Controlled Foreign Corporation (CFC-like provisions), to avoid negative consequences in India.
- Implement proper transfer pricing documentation where there are related-party transactions (intra-group financing, service fees, IP licensing, etc.).
Our team at Fintax Accountants Ltd can assist you end-to-end: from structuring and company formation to ongoing accounting, tax compliance, and advisory support in Cyprus. We also coordinate with Indian tax advisors to ensure the structure is efficient in both jurisdictions.
If you share some basic information about your business model (sector, expected turnover, holding structure, and whether you plan to relocate personnel), we would be pleased to prepare a tailor-made tax and structuring proposal for your group.
