Interest
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Incoming Interest
Interest earned by a Cypriot tax resident in the ordinary course of business or in close connection to its business is considered as trading income and is subject only to income tax at the rate of 10%.
Interest earned by a Cypriot tax resident that does not satisfy the above condition is exempt from Income tax and is subject only to Special Defence Contribution at the rate of 10% at source. This means that Defence tax is applied on the full interest income with no deductions as opposed to income tax which is applied at the taxable profit (i.e. after any allowable deductions from interest income are made).
If foreign withholding tax has been levied, the tax paid abroad may be credited against the tax payable in Cyprus.
Outgoing Interest
Cyprus does not impose withholding tax on interest payments made by a resident debtor to a resident creditor or to a non-resident creditor, regardless of the jurisdiction the interest is paid to.
Thin capitalisation regulations
Cypriot tax legislation does not contain any thin capitalisation rules.
