Cyprus is known for its favorable tax system. The corporate tax rate in Cyprus is 12.5%, one of the lowest in the European Union. Companies are subject to taxes on their worldwide income if they are resident in Cyprus, defined by the management and control of the company being located in Cyprus.

Cyprus offers several tax incentives to attract foreign investments, including exemptions on dividends, profits from foreign permanent establishments, and capital gains (except on immovable property in Cyprus). The country also has an extensive network of double taxation treaties, minimizing the risk of being taxed by multiple jurisdictions on the same income.

Businesses must also register for VAT if their annual turnover exceeds a certain threshold, and they must file tax returns annually.