All Cyprus tax resident companies are taxed on their income accrued or derived from all chargeable sources in Cyprus and abroad (worldwide income). 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.
From 1 January 2019 Controlled Foreign Company (CFCs) rules are applied, 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).
A company is a resident of Cyprus if it is managed and controlled in Cyprus. The control is determined by the place of the management, which represented by the Board of Directors. Foreign taxes paid can be credited against the Cyprus corporation tax liability.
The corporation tax rate for all companies is 12,5%.
Our Staff can provide with further advise for any questions that may arise.
The following are exempt from corporate tax:
|Type of income||Exemption limit|
|Profit 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 (1)|
|Interest not arising from the ordinary activities or closely related to the ordinary activities of the company (2)||The whole amount (3)|
|Profits of a foreign permanent establishment, under certain conditions (4)||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|
Generally, expenses incurred wholly and exclusively in earning taxable income and supported by documentary evidence are deductible for corporate tax purposes, including:
|Type of expense||Deduction limit|
|Interest expense incurred for the direct/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. It is expected that as from 1 January 2019 an interest limitation rule will apply in accordance with the EU relevant Directive.|
|Equity introduced to a company as from 1 January 2015 (new equity) in the form of paid-up share capital/share premium may be eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as the new equity x by the NID interest rate. The relevant interest rate is the yield on 10 year government bond (as at December 31 of the prior tax year) of the country where the funds are employed in the business of the company + a 3% premium (subject to a minimum amount which is the yield on the 10 year Cyprus government bond as at the same date + a 3% premium). For 2018 the minimum relevant NID interest rate is 4,881% (6,489% for 2017). A taxpayer may elect not to claim all or part of the available NID for a particular tax year. Certain anti-avoidance 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 ‘new’ Cyprus intellectual property (IP) box (provision applies with effect from 1 July 2016)(1)||80% of the net profit as calculated using the modified nexus fraction (2)|
|Royalty income, embedded income and other qualifying income derived from qualifying intangible assets in the ‘old’ Cyprus IP box (3)||80% of the net profit|
|Tax amortisation on any expenditure of a capital nature for the acquisition or development of IP (provision applies with effect from 1 July 2016) (4)||Allocated over the lifetime of the IP (maximum period 20 years)|
|Donations to approved charities (with receipts)||The whole amount|
|Employer’s contributions to social insurance, national health system and approved funds on employees’ salaries||The whole amount|
but not including:
|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.
The current year loss of one company can be set off against the profit of another, subject to conditions, provided the companies are Cyprus tax resident companies of a group(1). Group is defined as:
As from 1 January 2015 interposition of a non-Cyprus tax resident company(ies) will not affect the eligibility for group relief as long as such company(ies) is/are tax resident of either an EU country or in a country with which Cyprus has a tax treaty or an exchange of information agreement (bilateral or multilateral).
A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilization.
Losses of an exempt foreign permanent establishment can be set off with profits of the Cyprus head office. In such case, future profits of an exempt foreign permanent establishment abroad are taxable up to the amount of losses allowed.