A companys’ taxation also depends on its residential status. A company is considered to be a Tax Resident if it’s managed and controlled in Cyprus. While the tax law doesn’t provide a definition on management and control, it’s generally accepted that it’s the place where board decisions are taken and where the directors reside.
It is expected that as from 1st of January 2019 Controlled Foreign Company ( CFC ) rules will apply, i.e. non-distributed profits of CFCs directly or indirectly controlled by a Cyprus Tax Resident Company, may become subject to tax in Cyprus ( certain exceptions may apply).
Tax Resident companies are subject to tax based on their worldwide income, while non-Tax Residents companies are liable to tax based only on the income earned in Cyprus. Foreign taxes paid can be credited against the Cyprus Corporation Liability.
Below are the corporation tax rates that are applied in Cyprus:
Tax exceptions
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Dividends received. The entire amount.
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Profits from disposal of securities. The entire amount.
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Profits from permanent establishments abroad under certain conditions. The entire amount.
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Interest which is not derived from the ordinary activities or closely related to the ordinary activities of the company.
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Gains relating to foreign exchange differences (forex) with the exception of forex arising from trading in foreign currencies and related derivatives.
Tax Deductions
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Donations to approved charities. The entire amount.
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Capital allowances
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Interest expenses incurred for the acquisition of 100% subsidiary (direct or indirect)
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Notional Interest Deduction based on the equity introduced to a company as from 01.01.2015 in the form of paid up share capital or share premium. (Companies based on this they are eligible to have a deduction up to 80% of taxable income)
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Employer’s contributions to social insurance and approved funds. The entire amount.
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Expenses incurred wholly and exclusively in earning the taxable income of the company. The entire amount.
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Royalty Income, embedded income and other qualifying income derived from qualifying intangible assets in the “new “or “old” Cyprus IP box. 80% of the Net Profit “old “and for “new” 80% of the Net Profit using modifies nexus fraction.
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Expenditure incurred for the maintenance of a building for which there has to be either a Preservations order or certificate by the Minister of Interior that the expenses are in respect of preservation work for restoring the building. The amount that can be deducted depends from the size of the building and can be €700 or €1.100 or €1.200 per square meter.
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Entertainment expenses for business purposes. The amount can be no more than 1% of the total turnover (sales) and moreover maximum amount for deduction is €17.086 .
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Employers contribution to:
Medical Fund for employees (1% on employee’s remuneration and
Provident /Pension Fund for employees (10% on employee’s remuneration)
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Bad debts incurred. The entire amount.
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Expenditures for the acquisition of shares in an innovated business up to 31/12/2016.
The following expenses cannot deduct from company’s income:
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Expenses for a private saloon vehicle (i.e. petrol, maintenance) including the saloon car.
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Interest incurred for the acquisition of a private motor vehicle for the first 7 years.
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General Bad debt provisions and doubtful debt provisions are not allowable.
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Any Salary Bonus that are not reported to the Social Insurance
Losses carried forward
Losses carried forward or taxable losses acquired throughout a year of assessment, which cannot be set off against other income of the same year, are carried forward for a 5 years period and set off against future profits.
As from 1st of January 2015 a Cyprus tax resident company may also claim the tax losses of a group company which is tax residence in another EU country, provided EU company firstly exhausts all possibilities available to utilise its losses in its country of residence or in the country of any intermediary EU holding company.
A partnership or an individual trader transferring business into a company can carry forward tax losses into the company and balance it with future profits.
Losses from a permanent establishment abroad can be offset with profits of the company in Cyprus.
Group Relief
If two companies are members of the same group for the whole year of assessment and also are both Cyprus Tax Residents, subsequently the taxable losses of one company can be set off against the taxable profits of the other company. A company is considered to be in a group of companies when
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Is holding direct or indirect the 75% of the voting rights of the other company.
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Both companies are direct or indirect 75% owned by a third company.
Reorganisations
Transfers of assets and liabilities between companies under the provision of reorganization can be tax free.
Reorganisations include:
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mergers
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demergers
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transfer of activities
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partial divisions
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transfer of assets
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exchange of shares
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transfer of registered office of a European company (SE) or a European cooperative company (SCE).
Specific Industries
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Shipping Industry: under certain criteria the shipowners/Charters/ship managers may choose to be taxed under tonnage tax and not corporation tax with significant advantages.
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Insurance companies: taxation may vary based on the % of life insurance premiums.
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Alternative Investment Funds:
Funds which are manage and control in Cyprus following the general provisions of corporation tax but the overall tax approach is subject to the structure and components a fund may has.
There are different legal forms such as:
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Alternative Investment Fund Limited Number of Persons (AIFLNP):
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Variable Capital Investments Company
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Fixed Capital Investment Company
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Limited Partnership
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Alternative Investment Funds with unlimited Number of Persons (AIFs) and Registered AIFs (RAIF):=
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Variable Capital Investments Company
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Fixed Capital Investment Company
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Limited Partnership
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Common Fund
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