CYPRUS CORPORATION TAX

Basis of taxation

All companies tax resident of Cyprus are taxed on all their income accrued or derived from all sources in Cyprusand 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.

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

Tax rate %
Companies 10
Public corporate bodies 25
Exemptions

Type of income Exemption limit
Interest income not arising from the ordinary activities or closely related to the ordinary activities of the company 50%
Dividends income the whole amount
Profit from the sale of securities the whole amount
Profits of a permanent establishment abroad, subject to certain conditions the whole amount
Deductions

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

Type of expense Exemption limit
Interest incurred for the acquisition of a fixed asset used in the business the whole amount
Expenditure incurred for the maintenance of a building in respect of which there is a Preservation Order up to €342, €513 or €598 per sq. meter (depending on the size of the building)
Donations to approved charities (with receipts) the whole amount
Employer’s contributions to social insurance and approved funds on employees’ salaries the whole amount
But not including:

Type of expense Exemption limit
Business entertainment expenses including hospitality expenses of any kind which are incurred for the business amounts in excess of 1% of the gross income or €17.086 (whichever is the lower)
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
Professional tax the whole amount
Immovable property tax the whole amount
Contributions to the Social Cohesion Fund the whole amount
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.

The current year loss of one company can be set off against the profit of another provided the companies areCyprus tax resident companies of a group.

Group is defined as:

a)    one company holding at least 75% of the shares of the other company

b)    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.

Reorganisations include:

a)    mergers

b)    demergers

c)     transfer of activities

d)    exchange of shares
Capital Allowances

The following allowances for the annual wear and tear which are given as a percentage on the cost of acquisition are deducted from the chargeable income:

Fixed assets %
Plant and machinery
Fork lifts, excavators, loading vehicles, bulldozers and oil barrels 25
Motor vehicles of all types except from private saloon cars 20
Personal computers (hardware) and operating software 20
Application software
up to €1.708,60 100
above €1.708,60 33 1/3
Plant and machinery used in agriculture 15
Water drillings, industrial carpets, video recorders, televisions 10
Any other plant and machinery 10
Buildings
Metallic frame of greenhouses 10
Wooden frame of greenhouses 33 1/3
Industrial, agricultural and hotel buildings 4
Commercial 3
Ships
Sailing vessels 4,5
Steamers, tugs and fishing boats 6
Shipmotor launches 12,5
New cargo vessels 8
New passenger vessels 6
Used cargo/passenger vessels Over their
useful lifes
Tools
All tools in general 33 1/3
Videotapes used by video clubs 50
Special Modes of Taxation

Shipping companies

No income tax is payable on the profits earned or dividends paid by a Cyprus shipping company which owns ships under the Cyprus flag and operates in international waters (including chartering), or on the salaries of officers and crew of such ships

The exemption also applies to the bare boat charterer of a vessel flying the Cyprus flag under parallel registration

Local or international ship management and crew management businesses (corporated or unincorporated) have the option to be taxed either at the rate of 4,25% or at rates equal to 25% of the rates used to calculate tonnage tax of vessels under management which are registered outside Cyprus. If no election is made tonnage tax will be imposed. The election is made annually by 30 November of the previous year.

Royalty income – Intellectual property rights etc

The gross income arising from intellectual property rights, other exploitation rights, compensations or other similar income arising from sources within the Republic, of a person who is not resident in the Republic, is subject to withholding tax at a rate of 10%.

Royalties received by a connected company registered in a European Union member State are exempt from tax (subject to conditions).

Rights granted for use outside the Republic are not subject to any withholding tax.

Film royalties etc

The gross income derived by a non-resident person in respect of royalties arising from film projection in the Republic is subject to withholding tax at a rate of 5%. Royalties received by a connected company registered in aEuropean Union member State are exempt from tax (subject to conditions).

Profits of professionals, entertainers etc

The gross income derived by a non-resident individual from the exercise in the Republic of any profession, vocation or public entertainment services including football teams and other athletic missions, is subject to a 10% withholding tax.