Cyprus, one of the 10 new member states that joined the EU’s ranks recently could well take the top position in most favoured choices for routing of investments by FIIs into India. Cyprus corporate tax rates are now the lowest in Europe at 10%, lower than even those in Mauritius. More importantly, dividends and profits from trade in securities are normally tax-free in Cyprus. Profits from the disposal of shares, stocks and securities in any recognised stock exchange are also exempt from income tax in Cyprus.

Unilateral tax relief has been introduced for foreign tax paid abroad. This will be credited against any Cyprus tax, regardless of the existence of any double taxation agreement with the country where the foreign tax is paid. Cyprus also has a framework under which FIIs can pay lower taxes in their home countries.

About 50% of the interest received by corporations, excluding interest received in the context of the ordinary trading activity of the corporation (banks, interest on debtors) is exempted from tax. Capital gains tax is imposed only on the disposal of property situated in Cyprus. Dividend income can be exempt from tax if the Cyprus company holds at least 1% stake directly in the company paying the dividend.

The exemption does not apply if the company paying the dividend engages directly or indirectly in over 50% of its activities that produce investment income and the foreign tax burden on the income of the company paying the dividends is substantially lower than the Cypriot tax burden.

The country treats a company as its tax resident if it is managed and controlled from Cyprus. All expenses incurred in earning income can be deducted from taxable profit. Tax losses in a year can be carried forward and set off against future profits.