An Israeli Company Operating in Cyprus: Branch or Subsidiary, Permanent Establishment, VAT, Employing Staff and an Annual Compliance Calendar

Many Israeli companies sell to customers in Cyprus, employ staff there or manage projects on the island. The first question is not how to register a company, but what presence is needed at all, and what each option entails in tax, company law and employment law. This guide deals with the Republic of Cyprus only.

1In what ways can an Israeli company operate in Cyprus?

There are four main ways: selling directly from Israel without a permanent presence, working through an independent local agent or distributor, registering a branch of the Israeli company, or setting up a Cypriot subsidiary. The main difference lies in legal liability and exposure to tax in Cyprus.

Details of the steps for setting up a subsidiary appear in the guide on setting up a company in Cyprus. For real estate transactions see buying a property in Cyprus, and note that a Cypriot company controlled by non-EU citizens needs a Council of Ministers permit to acquire immovable property.

2When does activity in Cyprus create a permanent establishment?

A Permanent Establishment is usually created when the company has a fixed place of business in Cyprus, such as an office, a branch, a factory or a building site for a certain period, or when a dependent agent regularly concludes contracts on its behalf. Cypriot law defines a permanent establishment along the lines of the corresponding article of the 2014 OECD Model Convention.

• Registration is not the test: a permanent establishment may arise even when the branch was not registered, and then the company is exposed both to tax and to non-compliance with the registration obligation.
• Employees who contract on behalf of the company: a sales manager in Cyprus who signs contracts may create a permanent establishment.
• No treaty: in the absence of a tax treaty between Israel and Cyprus, the exposure is examined under Cypriot law alone, and in Israel a credit is given under Israeli law.
• Remote work: an Israeli employee who moves to live in Cyprus and works from there for the Israeli company raises questions of permanent establishment, social insurance and a work permit.

3What is needed to register a branch of an Israeli company in Cyprus?

A foreign company that establishes a place of business in Cyprus must register with the Registrar of Companies as an Overseas Company, under sections 346 to 354 of the Companies Law (Cap. 113). Registration is required within one month of establishing the place of business, and it publicises the existence of the branch without creating a new legal personality.

1. A board resolution of the Israeli company to open the branch and appoint persons authorised to act on its behalf.
2. Preparing the Israeli company's documents: certificate of incorporation and articles, with an apostille and translation as needed.
3. Filing a notice with the Registrar of Companies in Cyprus, including the company's name and legal form, and the branch name if different.
4. Stating the address of the place of business in Cyprus and the details of the persons authorised to act on behalf of the branch.
5. Registering the branch with the Tax Department and for VAT, if it makes taxable supplies.
6. Opening a bank account for the branch, if required, and registering as an employer if staff will be employed.

Even after registration there are ongoing obligations: updating the company's details with the Registrar, filing financial statements within 12 months of the balance sheet date, updating the register of charges and paying an annual fee that the Registrar lists for overseas companies.

4Does an Israeli company need a local director or representative in Cyprus?

A locally resident director is not required by law, but some local presence is needed. In a subsidiary there is no legal requirement for a director resident in Cyprus, but a secretary must be appointed and a registered office kept in Cyprus. For a branch, the details of the persons authorised to act on its behalf must be stated with the Registrar. In practice, local management presence helps both with the bank and with the question of tax residence.

5Must an Israeli company register for VAT in Cyprus?

Only if it crosses the registration thresholds. According to PwC Tax Summaries, as of November 2026: a business in Cyprus must register for VAT when turnover in the previous 12 months exceeds 15,600 euros, or when it is expected to exceed it within 30 days. In addition, there are separate thresholds for acquisitions from the EU (10,251.61 euros a year) and for services received from abroad (15,600 euros), and there is no threshold for intra-Community supplies.

An Israeli company selling services to a registered Cypriot business is usually subject to VAT under the reverse-charge mechanism at the customer's end, but selling goods located in Cyprus, or selling to private consumers, may require registration. The classification should be checked with a Cypriot VAT adviser before activity begins.

6What are an employer's obligations in Cyprus?

In 2026 the employer pays 8.8% social insurance plus contributions to health and other funds, according to PwC Tax Summaries. An employer in Cyprus must register with the Social Insurance Services, withhold income tax and contributions from salaries, and pay employer contributions to several funds. The 2026 rates according to PwC's summary:

• Ceiling on insurable earnings in 2026: 68,904 euros a year (5,742 euros a month), except for the social cohesion fund. GHS contributions are capped at annual income of 180,000 euros.
• Minimum wage from 1 January 2026: 979 euros gross a month on hiring, and 1,088 euros after six consecutive months of work with the same employer, under the Council of Ministers decree of 23 December 2025. Certain sectors, such as hotel workers, domestic workers and agriculture, are excluded from the decree.
• Personal income tax in 2026: 0% up to 22,000 euros, then 20%, 25%, 30% and 35% above 72,000 euros.

7Can Israelis be employed in Cyprus?

Yes, but an Israeli citizen who is not an EU citizen needs a residence and work permit. Cyprus operates a dedicated route for foreign-controlled companies (known as the Business Facilitation Unit, and recently the Business Support Centre), which allows companies meeting the conditions to employ third-country nationals through a faster procedure. The conditions, such as the level of investment and a minimum salary for key personnel, are updated from time to time and should be checked with the authorities before planning the employment.

8Under what law and in what language should contracts be drafted?

Commercial contracts between businesses in Cyprus are usually signed in English, and Cypriot contract law is based on the English tradition. When a Cypriot party insists on Cypriot law, it is worth making sure that the jurisdiction or arbitration clause allows proceedings in English and effective enforcement.

• A distribution or agency agreement: define whether the agent has authority to sign on behalf of the company, because of the permanent establishment risk.
• An employment contract: under Cypriot employment law, not an Israeli contract that was translated.
• Documents for a district court will usually be required in Greek.
• For every agreement: a governing-law, jurisdiction or arbitration clause, language and currency. Details are in the guide on commercial disputes in Cyprus, and see also a currency clause in a contract abroad.

9Does activity in Cyprus require a licence?

Most commercial activities do not require a special licence beyond company and tax registration. Regulated sectors, such as investment services, fund management, payments, insurance, real estate brokerage and professional services, require a licence or registration with the relevant regulator, for example the Cyprus Securities and Exchange Commission (CySEC) or the Central Bank. The need for a licence should be checked before activity begins, not after.

10How do you open a bank account for activity in Cyprus?

Banks in Cyprus want to understand the entire ownership chain up to the ultimate beneficial owner, the source of funds and the expected activity. An Israeli company needs to present the parent company's documents, financial statements, an explanation of customers and suppliers, and sometimes a meeting with the authorised signatories. See also what the know-your-customer process involves.

11What is the annual compliance calendar for a company in Cyprus?

According to PwC Tax Summaries, as of November 2026, the company pays two corporate tax instalments, by 31 July and by 31 December, and from tax year 2026 files its tax return by 31 January of the second year after the tax year. Alongside these come the annual return to the Registrar, VAT returns, monthly payroll withholdings and register updates:

12What must be reported in Israel?

An Israeli company with a branch in Cyprus reports all the branch's profits in Israel, and may claim a credit for the Cypriot tax under Israeli law. A Cypriot subsidiary requires reporting of the holding in a foreign company, and transfer prices between the Israeli company and the subsidiary must meet arm's-length rules in both countries. Reporting should be coordinated with an Israeli accountant. See the Israel Tax Authority reporting hub and Israel's tax treaties.

13How do you start operating in Cyprus, step by step?

First choose the mode of operation and check the permanent establishment risk, and only then register and open accounts. A practical order:

1. Choose the mode of operation: direct sales from Israel, an independent distributor, a branch or a subsidiary.
2. Check whether the planned activity, such as an office or an employee who signs contracts, creates a permanent establishment in Cyprus.
3. Register a branch within one month of establishing the place of business, or incorporate a subsidiary, and register the entity with the Tax Department.
4. Check the VAT registration obligation and whether the activity requires a licence from a regulator.
5. Prepare a document file for the bank and prepare to employ staff, including work permits for Israeli employees.
6. Coordinate with an Israeli accountant the reporting in Israel and transfer pricing between the companies.

This guide is general information correct as of November 2026, and every business structure requires a specific review.

More on doing business in Cyprus: Setting up a company in Cyprus · Corporate tax and transferring profits to Israel from Cyprus · Commercial disputes and litigation in Cyprus · Comparison of 8 countries · All guides for companies and businesses

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