A company is considered to be a tax resident of Cyprus if it is "managed and controlled" in Cyprus. Although no definition of management and control is provided in the tax law itself, this is generally accepted as being the place where board decisions are taking place and where the directors reside. Consequently, for a company to be managed and controlled in Cyprus we would expect to see resident directors and regular board meetings being held in Cyprus.
A company that is incorporated in a foreign country is considered to be tax resident in Cyprus if it is managed and controlled in Cyprus. The Cypriot branch of a foreign company is taxed at 12,5% as from 1st of January 2013 of its worldwide income as long as the management and control of the branch is in Cyprus. If it is exercised abroad, all the foreign income of the branch is exempt from Cypriot tax.
The general rule is that Cyprus tax resident companies are subject to corporate income tax on their worldwide income at the rate of 12,5% as from 1st January 2013. Semi-governmental organisations are taxed at the higher rate of 25%
Exemptions
|
Type of income |
Exemption Limit |
|
Interest not arising from the ordinary activities or closely related to the ordinary activities of the company |
The whole amount but subject to SDC at 15% |
|
Dividends |
The whole amount |
|
Profits of a permanent establishment abroad under certain conditions |
The whole amount |
|
Profits from the sale of securities |
The whole amount |
Note: Interest income of CIS is considered to be arising from the ordinary activities or closely related to the ordinary activities of the Scheme.
Tax deductions
All expenses incurred wholly and exclusively for the purposes of earning income including:
|
Type of expense |
Exemption Limit |
|
Donations to approved charities (with receipts) |
The whole amount |
|
Contributions to trade unions or professional bodies |
The whole amount |
|
Employer’s contributions to social insurance and approved funds on employees’ salaries |
The whole amount |
|
Expenditure incurred for a preserved building |
Up to €342, €513 or €598 per square meter (depending on the size) |
|
Entertainment expenses for business purposes |
Lower of €17.086 or 1% of the gross income of the business |
Non- Deductible expenses:
|
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 |
|
Employer’s contributions to social insurance and approved funds on employees’ salaries |
The whole amount |
|
Professional tax |
The whole amount |
|
Expenses incurred not wholly and exclusively for generating income |
The whole amount |
|
Cost of goods taken out of business for private use |
The whole amount |
Losses:
Tax losses incurred during a tax year and which cannot be set off against other income, are carried forward and set off against future profits with no time restriction. This provision applies for all losses incurred from tax year 1997 onwards.
No losses are carried forward in the case where in a three year period there is a change in the ownership of the shares of a company and there is a substantial change in the nature of the business of the company.
Also, in the case where an owner of a business, including a partnership, converts his/her business into a company, any accumulated losses of the owner may be carried forward to the company.
Group relief
The current year loss of one company can be set off against the profit of another provided that all of the group companies are Cyprus tax resident.
A Group is defined as:
- One company holding at least 75% of the shares of the other company or
- At least 75% of the voting shares of the companies are held by another company.
Losses from a permanent establishment
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
Any profit arising on the transfer of assets and liabilities between companies is allowed without any tax consequences within the framework of reorganization. Any unused tax losses can be carried forward by the receiving entity.
Reorganization includes:
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