Thus, they do not levy VAT on the sale of goods or the provision of services. As a result, offshore companies cannot apply for VAT registration and cannot reclaim VAT incurred on local purchases. Offshore companies however, which have established an office in Cyprus, do not pay VAT on telecommunication services and capital expenditure imported from abroad or purchased duty free.

Income tax
The net profits from offshore operations, after deduction of business expenses and capital allowances on fixed assets, are subject to reduced rates of tax or are completely exempt from tax, as follows:

offshore entities subject to tax at the rate of 4,25% are

• companies incorporated in Cyprus
• branches of foreign corporations managed and controlled from Cyprus

offshore entities are exempt from tax are

• branches of foreign corporations not managed and controlled from Cyprus
• partnerships
  

Dividends
Dividends are not subject to withholding or other taxes.

Interest
Interest earned on foreign funds deposited with local bank is exempt from tax.

Also, there are no withholding or other taxes on interest paid to depositors of Cyprus Offshore Banking Units or other offshore entities.

Other Taxes
Offshore entities are exempt from social insurance contributions on the emoluments of foreign employees and from tax on capital gains arising on disposal of assets, except in the case of gains arising from the disposal of immovable property situated in Cyprus. Furthermore, shares held in an offshore company are exempt from estate duty.