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Income Tax for Companies

 
14/02/2013
Tax Residency   Effective management and control must be exercised in Cyprus.
   
Management and Control   OECD term followed-Factors into consideration for maintaining substance
  • The composition of the Board of Directors.
  • Where the Board Meetings take place and whether major decisions are properly taken during these meetings.
  • The place where the discussion and approval of the Financial Statements takes place.
  • The Board of Directors must have control over the bank account which must be situated in Cyprus.
  • The place where the seal of the company is authorized to be used.
  • Presence in Cyprus through the rental of an office  is considered a plus
   
Income Tax rate   10% on taxable income -Lowest income tax rate in the Eurozone.
   
Tax deductions    Any expenditure incurred  wholly and exclusively for the production of taxable income
   
Dividend income    Wholly exempt from tax in Cyprus provided:
a. Less than 50% of the paying company’s income is a result of investing activities; and,
b. The foreign tax is not significantly lower than the tax burden in Cyprus (5% and less is considered as significantly lower)
   
Disposal of securities   Profits are not taxable unless Cyprus immovable property is involved.
   
Interest Income   Passive income is exempt from Income Tax but subject to 15% Special Defence Contribution
 
Trading income is taxed at 10% and not subject to Special Defence Contribution. 
   
Permanent Establishment   Profit of a PE of a Cyprus Company is exempt from income tax in Cyprus provided:
a.  Less than 50% of the PEs profit is a result of investing activities; and,
b. The foreign tax is not significantly lower than the tax burden in Cyprus (5% and less is considered as significantly lower)
   
Losses   Carried forward indefinitely to be set - off against future profits.
   
Group relief   Available subject to conditions
   
Transfer Pricing   No formal Transfer Pricing rules exist. However, the Income Tax Law is specific that the arm’s length principle should be adhered at all times.
   
Withholding taxes                     Payment of dividends, interest and capital distributions made by a Cyprus Company to non-resident shareholders are free from any withholding taxes.
   
CFC Rules   No Controlled Foreign Company rules 
   
Thin capitalization rules   No thin capitalization rules exist in Cyprus. However, the Income Tax Law is specific that the arm’s length principle should be adhered at all times.
   
Reorganizations                                                          The Income Tax Law adopts the relevant EU directive whereby reorganizations, amalgamations, mergers and acquisitions can be effected without any tax implications.

 

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