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Corporation Tax in Cyprus

Corporation Tax

All companies tax resident 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 a business activity which is carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus.

A company is resident of Cyprus if it is managed and controlled in Cyprus.

 

Corporation Tax Rates

The corporation tax rate for all companies is

12,5%

 

Exemptions

Type of Income

Exemption Limit

  • Interest not arising from the ordinary activities or closely related to the ordinary activities of the company (Note 1)

The whole amount (Note 2)

  • Dividend Income

The whole amount

  • Profits of a permanent establishment abroad (under certain conditions)

The whole amount

  • Profits from the sale of securities (Note 3)

The whole amount

  • Rent of preserved building (under certain conditions)

The whole amount

 

Notes:

  1. Interest income arising in the ordinary course of business including interest closely connected with the carrying on of the business, and interest earned by open-ended or closed-ended collective investment schemes, is not considered interest but trading profit and is not exempt
  2. Such interest income is subject to Special Defence Contribution
  3. The term “Securities” is defined as shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. A circular has been issued by the Tax Authorities in 2008 further clarifying what is included in the term Securities. According to the circular the term includes, among others, options on Securities, short positions on Securities, futures/forwards on Securities, swaps on Securities, depositary receipts on Securities (ADRs, GDRs), rights of claim on bonds and debentures (rights on interest of these instruments are not included), index participations only if they result on Securities, repurchase agreements or Repos on Securities, units in open-end or close-end collective investment schemes). The circular also clarifies specific types of participation in foreign entities which are considered as Securities.

Deductions

All expenses incurred wholly and exclusively in earning the income of the company including:

Type of Income

Exemption Limit

  • Donations to approved charities (with receipts)

The whole amount

  • Employer’s contributions to social insurance and approved funds on employees’ salaries

The whole amount

  • 80% of the net royalty income, including the net income emanating from the disposal of the intangible assets owned by a Cyprus tax resident company would be deemed as a deductible expense. (Note 1 &2)
80%
  • 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 any assets that are not used in the business.
The whole amount
  • Entertainment expenses for business purposes

Lower of €17.086 or 1% of the gross income of the business

  • Any expenditure incurred for the maintenance of a building in respect of which there is a Preservation Order

    €               Per m²

1.200           1 - 120

1.100        121 - 1.000

   700        1.001 - over

 

Notes:

  1. Intangible assets include copyrights, patents and trademarks.
  2. 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.

 

But not including:

Type of Income

Exemption Limit

  • Expenses of a private motor vehicle

The whole amount

  • Interest applicable to the cost of acquiring a private motor vehicle, irrespective of its use and to the cost of acquiring any other asset not used in the business

The whole amount for 7 years

 

 

Losses carried forward

The tax loss incurred during a tax year and which cannot be set off against other income, is carried forward and set off against future profits of the next five years.

 

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

  1. One company holding at least 75% of the shares of the other company.
  2. At least 75% of the voting shares of the companies are held by another company.

 

A partnership or a sole trader transferring business into a company can carry forward tax losses into the company for future utilisation.

 

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 taxable up to the amount of losses allowed.


Reorganisations

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

Reorganisations include:

  1. mergers
  2. demergers
  3. partial divisions
  4. transfer of assets
  5. exchange of shares
  6. transfer of registered office
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