The Corporation Tax in Cyprus
All companies which are managed and controlled in Cyprus are considered Cyprus Tax Residents and are liable to pay tax in Cyprus on the income accrued from chargeable sources in Cyprus and abroad. The foreign taxes paid on the income accrued from abroad can be credited against the corporation tax liability.
Non Cyprus Tax resident companies are taxed on the income accrued in through a permanent establishment in Cyprus and on certain income arising from Cyprus sources.
The Corporation Tax Rate in Cyprus for 2016 is 12,5% (2014-2015: 12,5%, 2013: 10%)
- Interest Income not arising from the ordinary course of business [subject to Special Defence Contribution].
- Dividend Income [subject to Special Defence Contribution].
- Profits from sale of financial instruments such as listed shares, bonds, debentures.
- 80% of the net royalty income from owned intellectual property.
- 80% of the net profit from the sale of intellectual property.
- Capital Expenditure for the acquisition or development of intellectual property can be claimed fully as a deduction the first 4 years on a straight line basis.
- 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.
- Donations to approved charities.
- Employer's Contributions to Social Insurance and approved funds on employee's salaries.
- Entertainment expenses for business purposes [1% on the gross income up to €17,086].
- Maintenance of Preserved building [up to €700, €1,100 or €1,200 per sq.m. depending on the size of the building].
- Private Motor Vehicle Expenses
- Interest expense in relation to the acquisition of private motor vehicle, irrespective if the asset is being used in the business.
- Taxes and Penalties
The taxable loss incurred during a tax year, is carried forward subject to conditions and set off against the profits of the next five years.
A group tax relief can be claimed in case a company within a group has made a taxable loss, provided the companies are Cyprus tax resident companies. The group is defined as one company holding minimum 75% of the voting shares of the other company, or both companies are owned by at least 75% by another 3rd company.
A partnership or a sole trader transferring his business into a company can carry forward the tax losses into the company for future set off against the profits.
Losses from a permanent establishment abroad can be set off with profits of the company in Cyprus. Subsequent profits of an exempt permanent establishment abroad are taxable up to the amount of losses allowed.
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 may include the following structures:
- Partial Divisions
- Transfer of Assets
- Exchange of Shares
- Transfer of registered office of a European Company (SE)
Wear and Tear Allowances are claimed fully the year the asset was acquired and none at the year of the disposal. The table below shows the percentage of the allowance on the cost of acquisition which can be deducted from the taxable income:
Plant and Machinery
|Plant and Machinery (for the years 2012-2014 20% can be used)||10|
|Furniture and Fittings||10|
|Commercial Buildings (for the years 2012-2014 7% can be used)||3|
|Industrial, Agricultural and Hotel Buildings||4|
|Wooden Greenhouses||33 1/3|
Vehicles and Means of Transportation
|Commercial motor vehicles||20|
|Excavators, tractors, etc.||25|
|Armoured Motor Vehicles||20|
|Steamers and Fishing Boats||6|
|New Cargo Vessels||8|
|New passenger Vessels||6|
|Televisions and Videos||10|
|Computer Hardware and operating systems||20|
|Other software (below €1,709 can be written off in the year of acquisition)||33 1/3|
|Wind Power Generators||10|