Cyprus Corporate Tax
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Corporate Tax in Cyprus.
Cyprus tax resident companies are taxed on their income from all sources in Cyprus and abroad.
A non- Cyprus tax resident company is taxed on income from a business activity carried out through a permanent establishment in Cyprus and on certain income arising from sources in Cyprus. A company is a resident of Cyprus if it is managed and controlled in Cyprus. Foreign taxes paid can be credited against the Cyprus corporation tax liability.
The Cyprus corporate tax rate is 12.5% and is one of the lowest in the European Union.
Corporate Tax Exemptions.
| Type of income | Exemption limit |
|---|---|
|
Profit arising from the sale of securities.
|
The whole amount |
|
Dividends (excluding, as from 1 January 2016,
dividends which are tax deductible for the paying company). |
The whole amount |
|
Interest not arising from the ordinary
activities or closely related to the
ordinary activities of the company. |
The whole amount |
|
Profits of a foreign permanent
establishment, under certain
conditions. |
The whole amount |
|
Gains relating to foreign exchange
differences (forex) with the exception
of forex arising from trading in foreign
currencies and related derivatives. |
The whole amount |
|
Profits from the production of films,
series and other related audiovisual
programs. |
The lower of 35% of the eligible
expenditure and 50% of the
taxable income.Any restriction
may be carried forward for
5 years. |
Corporate Tax Deductions.
Expenses incurred wholly and exclusively in earning taxable income and supported by documentary evidence are subject to deduction from tax.
| Type of Expense | Deduction Limit |
|---|---|
|
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. Moreover as
from 1 January 2019 an
interest limitation rule
applies in accordance with
the EU Anti-tax Avoidance
Directive. |
|
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 2019
the minimum relevant NID interest rate is
5,302% (4,881% for 2018). A taxpayer may
elect not to claim all or part of the available
NID for a particular tax year. Certain antiavoidance
provisions apply. |
The NID deduction
cannot exceed
80% of the taxable profit
derived from the assets
financed by the new
equity (as calculated
prior to the NID
deduction). |
|
Royalty income, embedded income and
other qualifying income derived from
qualifying intangible assets in the ‘old’
Cyprus IP box. |
80% of the net profit. |
|
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) |
80% of the net profit
as calculated using the
modified nexus fraction. |
|
Donations to approved charities (with
receipts). |
The whole amount. |
|
Tax amortisation on any expenditure of
a capital nature for the acquisition or
development of IP (provision applies with
effect from 1 July 2016). |
Allocated over the
lifetime of the IP
(maximum period 20
years) |
|
Employer’s contributions to social
insurance, national health system
(see page 56) and approved funds on
employees’ salaries. |
The whole amount |
|
Employer’s contributions to:
Medical fund for employees |
|
|
Expenditures incurred for the maintenance of a building in respect of which there is in force a Preservation Order. |
Up to €700,
€1.100 or €1.200
per square meter
(depending on the
size of the building |
|
Expenditure incurred for the acquisition
of shares in an innovative business
(abolished as from 1 January 2017). |
The whole amount |
|
Eligible infrastructure and technological
equipment expenditure in the audiovisual
industry. |
20% for small/ 10% for
medium enterprises |
|
Entertainment expenses for business purposes. |
Lower of €17.086 or 1%
of the gross income of
the business |
Exemptions don’t include the below expenses:
| Type of Expense | Deduction 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 from the date of
acquisition of the asset |
Losses carried forward.
The tax loss incurred during a tax year and which cannot be set off against other income, is carried forward subject to conditions and set off against the profits of the next five years.
When is a company considered as a part of a Group of companies?
- One Cyprus tax resident company holding directly or indirectly at least 75% of the voting shares of another Cyprus tax resident company.
- Both of the companies are at least 75% (voting shares) held, directly or indirectly, by a third company.
As from 1 January 2015 interposition of a non- Cyprus tax resident companies will not affect the eligibility for group relief as long as such companies are tax resident of either an EU country or a country with which Cyprus has a double tax treaty or an exchange of information agreement (bilateral or multilateral).
A Cyprus tax resident company may also claim the tax losses of a group company which is tax resident in another EU country, provided such EU company firstly uses the all possibilities available to utilize its losses in its country of residence or in the country of any intermediary EU holding company. A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilization.
Re-organizations.
Transfers of assets and liabilities between companies can, subject to conditions, be effected in a tax neutral manner within the framework of a qualified reorganisation, and tax losses may be carried forward by the receiving entity.
Reorganisations include:
- mergers
- demergers
- partial divisions
- transfer of assets
- exchange of shares
- transfer of registered office of a European company (SE) or a European cooperative company (SCE).
Annual wear and tear allowances:
| Fixed Assets - Machinery | % |
|---|---|
|
Plant and machinery |
10 |
|
Furniture and fittings |
10 |
|
Industrial carpets |
10 |
|
Boreholes |
10 |
|
Agricultural machinery and tools |
15 |
| Fixed Assets - Buildings | % |
|---|---|
|
Commercial buildings |
3 |
|
Industrial, agricultural and hotel buildings |
4 |
|
Flats |
3 |
|
Metallic greenhouse structures |
10 |
|
Wooden greenhouse structures |
33,33 |
| Fixed Assets - Vehicles | % |
|---|---|
|
Commercial motor vehicles |
20 |
|
Motorbikes |
20 |
|
Excavators, tractors, bulldozers, self-propelled loaders and
drums for petrol companies |
25 |
|
Armoured Motor Vehicles |
20 |
|
Specialised Machinery for the laying of Railroads |
20 |
|
New Aircraft (Airplanes & Helicopters) |
8 |
|
Sailing vessels |
4,5 |
|
Motor Yachts,Steamers, tugs and fishing boats |
6 |
|
Shipmotor launches |
15,5 |
|
New cargo vessels |
8 |
|
New passenger vessels |
6 |
|
Used cargo/passenger vessels |
Over their useful lives |
| Fixed Assets - Various | % |
|---|---|
|
Televisions and videos |
10 |
|
Computer hardware and operating systems |
20 |
|
Application software |
33,33 |
|
Wind Power Generators |
10 |
|
Photovoltaic Systems |
10 |
|
Tools in general |
33,33 |
|
Videotapes property of video clubs |
50 |
Tax for special type of companies.
Shipping companies Tax.
The Merchant Shipping Legislation fully approved by the EU provides for exemption from all direct taxes and taxation under tonnage tax regime of qualifying shipowners, charterers and shipmanagers, from the operation of qualifying community ships (ships flying a flag of an EU member state or of a country in the European Economic Area) and foreign (non community) ships (under conditions), in qualifying activities. The legislation allows non community vessels to enter the tonnage tax regime provided the fleet is composed by at least 60% community vessels. If this requirement is not met, then non community vessels can still qualify if certain criteria are met.
The legislation includes an “all or nothing” rule, meaning that if a shipowner/ charterer/ shipmanager of a group elects to be taxed under the Tonnage Tax system, all shipowners/ charterers/ shipmanagers of the group should elect the same.
Exemption is also given in relation to the salaries of officers and crew aboard a Cyprus ship.
Shipping Owners.
The exemption applies to:
- profits derived from the use/chartering out of the ships
- interest income relating to the working capital of the company
- profits from the disposal of qualifying ships
- dividends received from the above profits at all distribution levels
- profit from the disposal of ship owning companies and its distribution
The exemption also applies to the bareboat charterer of a vessel flying the Cyprus flag under parallel registration.
Charterers.
Exemption is given to:
- profits derived from the operation of chartered in ships
- interest income relating to the working capital of the company
- dividends received from the above profits at all distribution levels
The law grants the exemption provided that the option to register for Tonnage Tax is exercised for all vessels and provided a composition requirement is met: at least 25% (reduced to 10% under conditions) of the net tonnage of the vessels owned or bare boat chartered in.
Ship managers.
The exemption covers:
- Profits from technical and/or crew management
- Dividends paid out of these profits at all levels of distribution
- Interest income relating to the working capital of the company
In order to qualify ship managers must satisfy the following additional requirements:
- Maintain a fully fledged office in Cyprus with personnel sufficient in number and qualification
- At least 51% of all onshore personnel must be community citizens
- At least 2/3 of total tonnage under management must be managed within the community (any excess of 1/3 taxed under corporation tax)
The application of the tonnage tax system is compulsory for owners of Cyprus flag ships and optional for owners of non-Cyprus flag ships, charterers and ship managers. Those who choose to enter the Tonnage Tax regime must remain in the system for at least 10 years unless they had a valid reason to exit such as disposal of their vessels and cessation their activities.
Insurance companies tax.
Profits of insurance companies are liable to corporation tax similar to all other companies except in the case where the corporation tax payable on taxable profit of life insurance business is less than 1,5% of the gross premiums. In this case the difference is paid as additional corporation tax.
Taxation of funds.
Funds which are opaque for tax purposes and which are managed and controlled in Cyprus are tax resident in Cyprus and are subject to the general provisions of the Cyprus tax framework. In the case of funds which have compartments, each compartment is assessed separately for tax purposes subject to the provisions of the law. Under circumstances and depending on the legal form of the fund, some funds may be transparent for tax purposes. Additional key provisions which are relevant to funds are set out below:
Sale of Fund Units.
There is no Capital Gains Tax on the gains arising from the disposal or redemption of units in funds unless the fund owns immovable property in Cyprus. However, even if it owns immovable property in Cyprus, no Capital Gains Tax arises if the Fund is listed on a recognised stock exchange.
Stamp Duty.
The subscription, redemption, conversion or transfer of a fund’s units should be exempt from Cyprus stamp duty.
No creation of a permanent establishment.
Based on the Cyprus tax legislation no Cyprus permanent establishment will be deemed to arise:
- for non-Cyprus resident investors as a result of investment into Cyprus tax-transparent investment funds, or,
- as a consequence of the management from Cyprus of non-Cyprus investment funds.
Management services.
The management fee charged for the provision of collective management services to investment funds is exempt from VAT, provided certain conditions are met.
Carried interest / performance fee for AIF and UCITS fund managers.
Certain employees and executives of the following investment fund management companies or internally managed investment funds may opt for a different mode of personal taxation:
- Alternative Investment Fund Managers authorised under the
- Alternative Investment Fund Managers Law 56(I)/2013, as
- amended (hereinafter, the ‘AIFM Law’);
- Internally managed AIFs authorised under the AIFM Law;
- UCITS Management Companies authorised under the UCI Law; and
- Internally managed UCITS authorised under the UCI Law.
Subject to conditions, their variable employment remuneration which is effectively connected to the carried interest of the fund managing entity may, through an annual election, be separately subject to Cyprus tax at the flat rate of 8%, with a minimum tax liability of €10.000 per annum. This special mode of taxation is available for a period of 10 years.
