A company that is managed and controlled in Cyprus is considered a resident of Cyprus.
All companies that are tax residents of Cyprus are taxed on their income accrued or derived from all sources in Cyprus and abroad. A non-Cyprus tax resident company is taxed on income accrued or derived from business activity which is carried out through a permanent establishment (PE) in Cyprus and on certain other incomes arising from sources in Cyprus.
Corporate Tax Rates
- The Corporate Tax Rate on company profits is highly competitive at 12.5%.
Tax Exemptions
- All dividends received*, all profits from disposal of securities and all profits from permanent establishments abroad** are tax exempt. Interest derived from ordinary activities, or closely related to ordinary activities, are not subject to a Special Defense Contribution.
* Dividends may be subject to SDC at the rate of 17% where they do not qualify for exemption.
** Under certain conditions.
Tax deductions
The following expenses are deducted from the income of the company:
- All expenses incurred for generating income for the company.
- All donations to approved charities, as long as you have receipts.
- All employers’ annual contributions to any approved funds associated with employee funds.
- All bad debts, providing, of course, that all required procedures have been followed.
- All scientific research expenditure.
- All costs for patents or patent rights or royalties.
- All interest related to the acquisition of business assets that are used in the business as long as it concerns a taxable activity.
- 1% of gross revenue or €17,086.01 (whichever is the lower) of entertaining expenses paid for purposes of the business.
- Up to €512.58 or €939.73 per square meter (depending on the size of the building) for the costs of maintenance of a listed building. A Preservation Order or Certificate from the Ministry of the Interior must be provided to prove that the costs are for maintenance or preservation work.
The following expenses are not deducted from the income of the company:
- The expenses of a private saloon car (maintenance, petrol, etc).Fines and penalties, mortgage fees and unrealized foreign exchange loss.
- For the first seven years, any interest related to buying private saloon cars and any assets not used for the business (after seven years this interest will be deductible).
- The payment of immovable property tax.
- Any expenses not made wholly and exclusively for the purpose of the business.
Tax losses
The tax losses incurred during a tax year that cannot be offset against other income is carried forward and offset against future profits within five years.
Group loss relief
Provided that at least two companies of a group are Tax Residents of Cyprus, the current year loss of one of the companies can be offset against the profit of the other. The companies are in a group when one company is holding 75% of the voting rights of the other company or both the companies are 75% owned by another company. The tax losses can only be offset with tax profits of the same year and the companies must be members of the group for the whole tax year.
Losses from a permanent establishment abroad can be offset against profits from a company in Cyprus provided that any subsequent profits of the foreign company is taxed in Cyprus to the extent of the allowable losses which were offset.
Reorganizations
Transfers of assets and liabilities between companies can be affected without tax consequences within the framework of reorganization.
Reorganizations include mergers and demergers, transfer of registered office, exchange of shares, partial divisions and transfer of assets.
Wear and tear allowance rates
Wear and Tear Allowances are estimated as a percentage on the cost of acquisition of fixed assets and are deducted from the taxable income of a company. FinExpertiza Cyprus team will be happy to provide you with all relevant information on these percentages.
EU Parent Subsidiary Directive
The EU Parent Subsidiary Directive is designed for the benefit of Cyprus holding companies. This directive provides that dividends paid between associated businesses that are both situated within the EU are made free of any withholding taxes. For a company to be an associate of another, it must hold at least 10% of its share capital.
A credit will be provided for any tax paid in that EU country if, irrespective of the shareholding percentage, dividends received do not qualify for participation exemption as described above. Tax paid includes not only withholding taxes but also any tax attributable to the profits of the paying company (underlying tax) on lower level subsidiaries.
Withholding taxes
No Cypriot withholding taxes will apply with respect to any distribution of dividends and interest by a company to Non Cyprus Tax Resident shareholders (be they companies or individuals) and Cyprus Tax Resident Companies.
Insurance companies
Insurance companies are liable to corporation tax. For life insurance companies, in cases where the corporation tax payable is less than 1.5% of the gross insurance premiums, then the difference must be paid as additional corporation tax.
Shipping companies
Shipmanagement profits are exempt from income tax or corporation tax until 2020 if it elects to be taxed under tonnage tax.
For more information and/or advice, please contact us via email at info@finexpertiza.cy