Startups in Cyprus: Legal and Tax Benefits


Cyprus is known for offering an innovative, diverse and business-friendly environment for investors which in turn has created an emerging startup ecosystem. This is achieved through the provision of various tax incentives for investment and innovation, the availability of a start-up visa and a number of funding opportunities. This article shall examine some of these core benefits offered to startups registered in Cyprus.

Startup Visa

The startup visa is an immigration program offered to entrepreneurs coming from outside the EU and the EEA, permitting them to enter, reside and work in Cyprus in order to establish and operate a startup with a high growth potential.

A startup group applying for this specific visa may consist of up to five founders (or one founder and additional executive members), the majority of which are third country nationals, and must have a minimum of €20.000 capital or €10.000 if the founders are less than two. Successful applicants will enjoy the right to economic activity and residence in Cyprus for one year (plus possibility of renewal for another year), and prospective residence in Cyprus for the founders/ executives and their families without any maximum time restrictions, if the company succeeds.

Cypriot companies in which third country nationals own greater than 50% of the share capital with a capital equal or greater than €200.000, can also register as foreign interest companies with the migration department, and thus employ a greater number of third country nationals through a fast-track immigration process.

Tax benefits

With an extensive double tax treaty network of approximately 70 countries across the globe, Cyprus offers a number of tax benefits to startups and foreign investors of such startups, including the following:

  • A non-Cypriot individual relocating to Cyprus to set-up their startup is exempt from tax on both dividend and interest income, though they will still be subject to income tax on any income earned from their employment in Cyprus.
  • Corporate tax on net profits of Cypriot companies is 12,5%, one of the lowest rates in the EU. Technology companies producing Intellectual Property can apply for an 80% tax exemption, reducing the corporate tax rate to an effective 2.5%.
  • Capital gains arising from the disposal of the qualifying IP are fully exempt from tax. Any gains earned by the entrepreneur from the disposal of his/her shares in a Cypriot tax resident company are generally exempt from tax in Cyprus.
  • Cyprus tax resident companies may carry forward tax losses incurred during a tax year over the following five tax years to offset future taxable profits, allowing startups, which are commonly loss making in their early stages, to benefit from reduced taxation in the future.
  • Upon the introduction of new equity, a Cyprus tax resident company is entitled to claim a notional interest deduction (NID) as a tax-deductible expense. The deduction is available on an annual basis and may reach up to 80% of the taxable profit generated from the new equity. Depending on the level of capitalisation, a startup company may reduce its effective tax rate to as low as 2,5%.
  • Profits from disposals of corporate 'titles' are tax exempted from corporate income tax. Capital gains on immovable property situated in Cyprus (and on non-quoted shares directly or indirectly holding such Cyprus-situated immovable property) are however taxed.
  • Special defence contribution is imposed only on non-exempt dividend income, 'passive' interest income, and rental income earned by Cypriot tax resident companies and Cypriot permanent establishments of non-Cyprus tax resident companies. It is important to note that dividend income received from non-Cyprus resident companies is tax exempted, under certain conditions and the special defence contribution in general is not applicable on ''non domicile'' individuals (e.g. an individual who has not been a tax resident of Cyprus for at least 17 years out of the last 20 years prior to the year of assessment).
  • Investors in innovative start-up companies (which have been certified as such by the Ministry of Finance in Cyprus) can enjoy an up to 50% tax exemption on their annual taxable income in Cyprus.

Funding opportunities

The regulatory structure in Cyprus offers a strong protection to investors as well as tax benefits to those investing in enterprises producing intellectual property, thus rendering a Cypriot startup as an attractive vehicle which independent investors may fund.

As Cyprus is a fully-fledged EU member state, Cypriot enterprises also have access to EU funding instruments, such as the Horizon 2020 SME Instrument, as well as structural funds implemented through national development plans.

Intellectual Property

Other than the tax benefits offered to Cypriot companies producing and profiting from intellectual property, such assets owned by Cypriot companies can be protected and registered from Cyprus into the national registers, EU as well as international registers.

Low business costs

The costs involved with setting up and operating a Cypriot startup are significantly lower than those in other major European countries. These costs include the average hourly rates for labour, costs for technical and professional talents, office rental rates and critical business support services, such as legal and accounting services.

Our services

Our Firm’s dedicated team includes specialists on the full spectrum of the law, which can offer support, guidance and advice either during the establishment of the startup or throughout its development and operation. Our team members have extensive experience on matters relating to, amongst others, intellectual property protection, the incorporation and administration of Cypriot companies, tax benefits and structures, preparation and negotiation of all necessary funding, shareholders or joint venture agreements and many more.

The content of this article is valid as at the date of its first publication. It is intended to provide a general guide to the subject matter and does not constitute legal advice. For any further information or advice please contact Lorena Charalambous, Partner at +357 25 363685 or by email at Lorena.charalambous@kyprianou.com .