north cyprus tax and legal environment

Revenue from taxation is one of the major strategies the government uses to generate funds in North Cyprus. Indeed the government has diverse sources of revenue which include tax revenue, non-tax revenue, and grants. Payments, charges, royalties, and hiring of public assets are expressed as samples of non-tax revenue. The North Cyprus tax system consists of different types of taxes divided into two subsets; direct and indirect taxes.

According to TRNC law, all the residents of Northern Cyprus are subject to income tax. The country has a progressive tax system. It means that individuals with a higher income level are to pay a higher percentage of tax than those with lower income. In other words, the taxation system in TRNC is structured so that the aggregate amount of tax liability is completely related to the quantity of income earned by the individual.

Tax Environment

All companies and other corporate bodies, except cooperative societies, are chargeable with corporation tax.

Corporations that are registered in the state as “Local Companies” are charged with 10% tax on chargeable income. Corporations that are “Foreign Companies,” whether registered in the state or not, are also charged at the rate of 10% on chargeable income only derived from a trade or other income in TRNC.

Foreigners operating in the field of transportation, including corporations, shall not be subject to withholding tax on taxable income to be ascertained under the provisions of the corporation tax law and the income tax law.

Stamp Duty

Stamp duty is the tax levied on documents. Legal documents or formal documents are issued with the stamp duty. It should be paid to the tax service within 21 days from the signing of the contract of sale. This payment is made when the contracts are being signed.

Taxation Of Companies Incorporated Under Special Laws

Free Zone Companies

Northern Cyprus free zone companies are subject to some taxes in TRNC. Some exemptions are available for these companies because of the special status of the free zone companies and laws.

Northern Cyprus free zone companies are exempt from corporation tax if the operations are conducted in other countries. Corporation tax and income tax are calculated on the profits if these companies carry out the trade activities with individuals or companies in TRNC.

There is no VAT (Value-added Tax) in transactions for Northern Cyprus free trade zone companies.

Northern Cyprus Free Zone Companies are to deduct the tax amounts from the wages of employees. Also, social insurance payments and other relevant payments are subject to the employee wages.

International Business Companies (Offshore Companies)

International business companies (offshore companies) are transactions carried outside of the TRNC. Corporation tax for international business companies is %1 of their net taxable profits.

International business companies are not subject to value-added tax(VAT) on their sales and trade activities.

International business companies should deduct the tax amounts from the wages of employees. Also, social insurance payments and other relevant payments are to employee wages.

Legal Environment in Northern Cyprus

The island of Cyprus was included in the Ottoman territories during the classical period in Ottoman history when all regions of the empire had the same legal system structure. From there on, a newly formed administrative body was connected to Istanbul, the capital city of the Ottoman Empire, and the judiciary applied Islamic laws on the island.

The British Administration established a new legal system when they arrived at the island. Criminal disputes were of great importance for the British to maintain public order on the island when they first arrived.

Following the declaration of the TRNC, during an Assembly meeting in December 1983, it was decided that the Assembly would become “Constituent Assembly” with 70 members and was given the tasks of drafting the constitution, holding elections, and carrying out necessary legislative activities hitherto.

TRNC constitution has private property rights and legislation for foreign and local companies. Foreign investors from other companies must comply with law enforcement and courthouses. Foreigners’ rights are guaranteed in the constitution, and corporate laws are applied to the foreign shareholders.

Companies that operate within the TRNC must comply with the legal structures. Special incentives and special company types need to be recognized and organized before the company foundation. The Justice system in Northern Cyprus offers protection to foreign investors. Regarding the protection of the investments, courthouses and the state are responsible.


Tax and Legal Environment in North Cyprus

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