Taxes in Cyprus for Small Businesses

Cyprus remains one of the most favorable European jurisdictions for entrepreneurs running small businesses. Low tax rates, straightforward reporting, and digital procedures make the system convenient even for those managing a company remotely. For foreigners who establish a business on the island, a key advantage is transparency of rules and avoidance of double taxation under bilateral agreements. However, to use these benefits legally and effectively, it is important to understand how small business taxation works and what obligations arise for resident companies.

Corporate Tax and Calculation Features

The main tax for legal entities is corporate tax. In 2025, the rate is 12.5%, making Cyprus one of the most competitive jurisdictions in the EU. Tax is applied to net profits after deducting all verified expenses, including rent, raw material purchases, salaries, and marketing costs.

For companies owned by non-residents, it is important to confirm that management is conducted from Cyprus. This ensures tax residency and eligibility for benefits. The critical factor is where key management decisions are made, not the citizenship of the owner.

Certain business categories — such as startups or innovative projects — may qualify for a reduced rate or partial tax exemption under the Cyprus IP Box Regime, provided the program requirements are met.

VAT and Related Fees

The Value Added Tax (VAT) in Cyprus is set at 19%. It applies to most goods and services, except for socially important categories (e.g., food, medicine, and residential rent), which benefit from reduced rates of 5% or 9%.

VAT registration becomes mandatory if a company’s turnover exceeds €15,600 per year. The registration is conducted online via the TAXISnet system. Subsequently, the entrepreneur must submit quarterly reports and remit the tax to the budget on time.

In addition to VAT, entrepreneurs are also liable for:

• Social Insurance contributions (GESY) — approximately 7.8% of employees’ salaries;
• Defence Contribution — applicable only to residents receiving dividends or interest;
• Municipal fees, covering services such as waste collection, street lighting, and local amenities (typically up to €200 per year).

Reporting and Legal Assistance

Taxes in Cyprus are based on a self-assessment system: businesses calculate and pay taxes themselves, but reports must be certified by a licensed auditor. Small companies are required to submit annual financial statements and tax declarations no later than July 31 of the following year.

For foreigners, it is especially important to correctly determine tax residency and avoid double counting of income. This is why the assistance of a lawyer and accountant is an essential part of running a company. Professionals can help to:

• Properly structure ownership and appoint a local director;
• Coordinate agreements with auditors;
• Prepare documentation for tax authorities;
• Obtain clarifications from the Tax Department if necessary.

The Cypriot tax system remains one of the most predictable and business-friendly for small enterprises. Moderate rates, electronic reporting, and flexible residency rules create a comfortable environment for foreign companies. At the same time, understanding regulatory details and having competent legal support allows businesses to leverage the advantages of the jurisdiction without the risk of fines or tax disputes.