How Business Tax Works in North Cyprus: A Clear Guide for Companies & Entrepreneurs

How Business Tax Works in North Cyprus - Introduction

Understanding how business tax works in North Cyprus is essential for anyone planning to start, relocate, or operate a company on the island. One of the main attractions of North Cyprus for entrepreneurs is its straightforward and relatively low-tax business environment, particularly when compared with many EU jurisdictions.

This guide explains business taxation in North Cyprus in plain English, covering corporate tax, VAT, withholding tax, social security contributions, and key compliance requirements.

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Corporate Tax in North Cyprus

Standard Corporate Tax Rate

Companies operating in North Cyprus are subject to Corporate Income Tax at a flat rate of 23.5% on net profits.

This applies to:

·         Limited companies

·         Branches of foreign companies

·         Free Trade Zone companies (with special rules)

Tax is calculated after allowable business expenses have been deducted.

What Counts as Taxable Profit?

Taxable profit generally includes:

·         Trading income

·         Service fees

·         Rental income from commercial property

·         Interest income (with some exceptions)

Allowable deductions typically include:

·         Rent and utilities

·         Salaries and wages

·         Professional fees

·         Marketing and advertising

·         Vehicle and fuel expenses (business use)

·         Depreciation on assets

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Value Added Tax (VAT) in North Cyprus

VAT Rates

VAT (KDV) in North Cyprus is charged at different rates depending on the goods or services provided:

·         0% – Certain exports and essential goods

·         5% – Basic food items and essentials

·         10% – Some services and hospitality

·         16% (standard rate) – Most goods and services

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VAT Registration

Businesses must register for VAT if they:

·         Exceed the VAT threshold

·         Provide VAT-liable goods or services

·         Import goods commercially

Registered businesses must submit monthly VAT returns.

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Withholding Tax on Dividends

When a company distributes profits to shareholders, a withholding tax of 10% is applied to dividends.

This tax is deducted at source and paid directly to the tax office by the company.

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Social Security & Payroll Taxes

Employers in North Cyprus are responsible for social security contributions for employees.

Employer Contributions

·         Social Insurance: approx. 15.5%

·         Provident Fund: approx. 5%

Employee Contributions

·         Social Insurance: approx. 9%

·         Provident Fund: approx. 5%

These contributions are calculated monthly and submitted to the Social Insurance Department.

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Provisional Tax Payments

Businesses are required to make advance (provisional) tax payments during the financial year, usually in two instalments.

At year-end:

·         Final accounts are submitted

·         Any underpaid tax is settled

·         Overpayments may be offset

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Free Trade Zone Tax Benefits

Companies operating in North Cyprus Free Trade Zones can benefit from:

·         0% corporate tax on qualifying export income

·         VAT exemptions

·         Customs duty advantages

These zones are particularly attractive for:

·         International trading companies

·         Online services

·         Logistics and warehousing businesses

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Accounting & Compliance Requirements

All companies must:

·         Maintain proper accounting records

·         Submit annual financial statements

·         File corporate tax returns

·         File VAT returns (if registered)

Most businesses appoint a licensed local accountant, which is strongly recommended and relatively inexpensive.

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Is North Cyprus a Tax-Friendly Jurisdiction?

North Cyprus is widely regarded as business-friendly, offering:

·         Flat corporate tax rate

·         No capital gains tax on many asset sales

·         Simple company structures

·         Low operating costs

·         Straightforward compliance

While it is not an offshore tax haven, it provides a transparent and predictable tax system ideal for SMEs, property companies, and service businesses.

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Final Thoughts

Understanding how business tax works in North Cyprus allows entrepreneurs to plan confidently, remain compliant, and maximise profitability. With sensible rates, minimal bureaucracy, and professional local support readily available, North Cyprus remains an attractive location for business formation and growth.

For anyone considering company setup, early advice from a local accountant or business consultant is strongly recommended.