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CORPORATION TAX

Cyprus Tax Resident Companies are those which are managed and controlled in Cyprus. These are taxed on profits based on their income accrued or derived from all sources in Cyprus and abroad. Non-resident Companies are taxed on income accrued or derived from a business activity which is carried out though a permanent establishment in Cyprus and on certain income arising from sources in Cyprus. Foreign taxes paid can be credited against the corporation tax liability.

 

Tax rate:

 Corporation tax 12,5% 

 

Tax Allowances/ Exemptions of Legal Entities

 

Interest income not arising from the ordinary activities or closely related to the ordinary activities of the company 100 %
Dividend income 100 %
Gain on sale of Securities 100 %
Profits from a permanent establishment overseas (under presumption) 100 %
Rent from preserved building (under conditions) 100 %
Gains arising from loan restructuring 100 %
Foreign exchange gains (except from gains arising from trading) 100 %

 

Deductible Expenditure of Legal Entities

Expenses incurred wholly and exclusively in earning taxable income and supported by documentary evidence are deductible for corporate tax purposes, including:

Employer’s contributions to approved funds 100 %
Expenditure incurred wholly and exclusively for the purpose of generating income 100 %
Donations and subscriptions with receipts to approved charitable Organizations 100 %
Entertainment expenditure 1% of gross income and restricted to the maximum of €17.086
Expenditure incurred for the maintenance of a building in respect of which there is in force a Preservation Order €1.200 for up to 120sq. m.
€1.100 for up to 1.000sq.m.
€700 for 1.001sq.m. and over
Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘new’ Cyprus intellectual property (IP) box (provision applies with effect from 1 July 2016)(1) 80% of the net profit as calculated using the modified nexus fraction (2)
Interest expense incurred for the direct or indirect acquisition of 100% of the share capital of a subsidiary company will be treated as deductible for income tax purposes provided that the 100% subsidiary company does not own (directly or indirectly) any assets that are not used in the business. If the subsidiary owns (directly or indirectly) assets not used in the business the interest expense deduction is restricted to the amount which relates to assets used in the business. This applies for such acquisitions of subsidiaries from 1 January 2012. The whole amount of interest expense if the subsidiary does not own (directly or indirectly) any assets not used in the business.
A restricted amount of interest expense is allowed to the extent the subsidiary owns (directly or indirectly) assets used in the business
Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital or share premium may be eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as the new equity multiplied by the NID interest rate. The relevant interest rate is the yield on 10 year government bonds (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company plus a 3% premium (subject to a minimum amount which is the yield on the 10 year Cyprus government bond as at the same date plus a 3% premium). For 2017 the minimum relevant NID interest rate is 6,489% (6,685% for 2016). A taxpayer may elect not to claim all or part of the available NID for a particular tax year. Certain anti-avoidance provisions apply. The NID deduction can not exceed 80% of the taxable profit derived from the assets financed by the new equity (as calculated prior to the NID deduction).
Donations to approved charities with evidence (receipts) 100 %
Professional license for Companies Unlimited
Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘old’ Cyprus IP box.
[The term ‘qualifying intangible assets’ under the old Cyprus IP box includes copyrights, patents and trademarks. The old Cyprus IP box closed as from 30 June 2016. Under transitional/grandfathering rules, taxpayers with intangible assets that were already included in the old Cyprus IP box as at 30 June 2016 continue to apply the old Cyprus IP box provisions for a further five years i.e. until 30 June 2021 for those intangible assets. A much shorter transitional/ grandfathering period to 31 December 2016 applied in the case of intangible assets acquired directly or indirectly from related parties during the period 2 January 2016 – 30 June 2016, unless at the time of acquisition such intangible assets were already benefitting from an IP box (including the Cyprus IP box) or were not acquired with the main purpose (or one of the main purposes) being tax avoidance. Embedded income and income earned from intangible assets economically but not legally owned will only qualify in the relevant transitional/grandfathering period if earned from those type intangible assets that would qualify for the new Cyprus IP box (i.e. patents, copyrighted software, etc.). Additionally any expenditure of a capital nature incurred for the acquisition or development of such intangible assets may be claimed as a tax deduction in the year in which it was incurred and the immediate four following years on a straight line basis.]
80% of the net profit
Tax amortization on any expenditure of a capital nature for the acquisition or development of IP (provision applies with effect from 1 July 2016).
[Excluding goodwill and intangible assets falling under the transitional rules of the old Cyprus IP box which continue with that box’s tax amortization (see 3 above). A taxpayer may elect not to claim all or part of the available tax amortization for a particular tax year.]
Allocated over the lifetime of the IP (maximum period 20 years)

 

Non-Deductible Expenditure of Legal Entities

Immovable property tax  The whole amount 
 Interest attributable or deemed attributable to the cost of buying a private motor vehicle which is used in business and other assets which are not used in business 100% for the first seven years, indefinitely there after
 Private motor vehicle expenses The whole amount
 Entertaining expenses Lower of 1% of gross income or €17.086
 Expenditure not supported by proper documentation according to the relevant regulations  The whole amount
 Wages and salaries on which social insurance contributions were not paid or were due  The whole amount

 

 Corporate Tax Losses

Tax losses can be carried forward and set off against the profits of the next five (5) years, subject to conditions as from the year 2007 onward.
A partnership or a sole trader transferring business into a company can carry forward tax losses into the company for future utilization.
Losses from a permanent establishment abroad can be set off with profits of the company in Cyprus. Subsequent profits of the permanent establishment abroad are offset in previous periods, will be included in the taxable income of this year, up to the amount of profit from permanent establishment abroad.

The current year loss of one company can be set off against the profit of another, subject to conditions, provided the companies are Cyprus tax resident companies of a group. Group is defined as:

  • One company holding at least 75% of voting shares of the other company.
  • Both of the companies are at least 75% (voting shares) held by another third company

Group Relief

Current year tax losses within group of Cyprus tax resident companies can be surrendered provided that the group companies are members of the same group for the entire year.

Current year tax loss from another EU group Company can be surrendered provided such losses have not firstly been utilised in its country of residence or any intermediary EU holding company.

Group is considered when:

  • One is a 75% subsidiary of the other, or
  • Both are 75% subsidiaries of a third company

Group relief may be claimed even if there is a non-Cyprus tax resident company in the group provided that such company is in an EU Country or a country which has either a tax treaty with Cyprus or exchange of information treaty (bilateral or multilateral).

 

Foreign Tax Credit

Foreign tax paid on income taxed in Cyprus can be credited against Cyprus income tax irrespective of the existence of a tax treaty.

 

Salaries -Allowable Expense

Salaries will only be treated as allowable expense when declared in full at the social insurance office and all the necessary deductions are paid (social insurance, redundancy, training & development, cohesion, trade union, provident fund etc). Any salaries for which no above deductions are paid will not be treated as allowable expense for taxation purposes.

In cases where the deductions are paid within two years from the date they become due, then the expense will be tax allowed at the year of payment.

 

Reorganisations

Transfers of assets and liabilities between companies can, subject to conditions, be affected without tax consequences within the framework of a reorganisation and tax losses can be carried forward by the receiving entity.

Reorganisations include mergers, demergers, partial divisions, transfer of assets, exchange of shares and transfer of the registered office from/ to Cyprus.

 

ANNUAL GOVERNMENT FEE TO REGISTRAR OF COMPANIES FOR CYPRUS REGISTERED COMPANIES

The Annual Government fee is €350, payable to the Registrar of Companies by 30 June.
In the case of group companies the total amount payable is capped at €20.000.

Late payment of the levy will give rise to the following penalties: in case of up to a 2 month delay - a 10% penalty; in case of a delay between 2 and 5 months - a 40% penalty.

Non-payment of the levy may result in deregistration (strike-off) of a company by the Cyprus Registrar of Companies (which will not allow the company to submit documents or request certificates from the Registrar of Companies). If a company is re-instated within a two year period from its strike-off a fixed penalty of €500 (in addition to the outstanding amount of the levy) is imposed. The fixed fee will be increased to €750 where a company is re-instated after the two year period.

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2 Christ. Sozos Str. Eiffel Tower, 1096 Nicosia, Cyprus
P.O.Box 21855, 1514 Nicosia, Cyprus

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Limassol / Lemesos
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