And the most important fact is that the Cypriot authorities are keen to promote the island as an offshore tax haven. The whole of an offshore enterprise's income from any trade or business is deemed to be derived in Cyprus. Income from all sources is aggregated, with all outgoings and expenses wholly and exclusively incurred in the production of the income being allowed as deductions. In the absence of a treaty for the avoidance of double taxation, any tax payable in the other country is deducted as an expense in arriving at a chargeable income. If a treaty is in force with the other country, any tax paid in the other country is credited against the Cyprus Tax.
Tax is assessed on net income on a current year basis.
Royalties or interest may be taxed at lower rates or be totally exempted from tax if they are received from a country with which Cyprus has a treaty for the avoidance of double taxation. Royalties paid by offshore companies to non-residents are not liable to withholding tax if the use of such a right is outside Cyprus. In fact, Southern Cyprus is a favourite with expatriates, especially those working in the Middle East. The country's strong links with the UK and accommodating tax regime are strong financial points in its favour.