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 10%


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
  • 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


But not including:

Type of Income Exemption Limit
  • Professional tax
 The whole amount
  • 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 with no time restriction. This provision is applicable for all losses incurred from tax year 1997 onwards.
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:

  • One company holding at least 75% of the shares of the other company.
  • 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:

  • mergers
  • demergers
  • partial divisions
  • transfer of assets
  • exchange of shares
  • transfer of registered office