Corporation tax

Corporate taxation is dependent on the residential status of the company. If the company is operated and managed in Cyprus, meaning that all major decisions and board meetings are done where the directors reside, it is considered a “Tax Resident”.

Since the 1^st of January 2019 the Controlled Foreign Company (CFC) rules have been applied, indicating that non-distributed profits of CFCs either directly or indirectly controlled by a Tax Resident company of Cyprus, may become accountable to tax in Cyprus (some exemptions may apply).

Cyprus Tax Resident companies are accountable to tax based upon their worldwide income, whereas non-Tax Resident companies are accountable to tax based only upon their income earned in Cyprus.

The corporate tax on Limited Liability Companies in Cyprus is 12.5%.

Tax Exemptions

Received dividends (total sum).

Profits received from the disposal of securities (total sum).

Profits received from permanent establishments abroad – under several conditions (total sum).

Gains relating to overseas exchange differences (i.e. forex), except for forex commencing from trading in foreign currencies and related derivatives.

Interest which is not obtained from the regular company activities, or activities which are closely related to regular.

Tax Deductions

Capital allowances.

Donations to certified charities (total sum).

Interest expenses earned for the purchase of 100% subsidiary.

Notional Interest Deduction (NID): according to the equity launched to a company from 01^st of January 2015, as paid up share premium or share capital. (N.B. Based on this equity, companies are entitled to have deduction up to 80% of taxable income)

The contribution of an employer to social insurance and approved funds (total sum).

Costs incurred entirely and solely in earning the taxable income of the corporation (total sum).

Corporate entertainment expenses: the amount spent must be no more than 1% of the total turnover and the highest amount for deductions is €17.086.

Embedded income, royalty income and any other qualifying revenue obtained from qualifying intangible assets in the “new” or “old” Cyprus IP box. For the “old” – 80% of Net Profit, and for the “new” 80% of the Net Profit using modified nexus fraction.

Disbursements from the maintenance of a building for which there must be a Preservations Order, or a certificate issued by the Minister of Interior, indicating that the expenses are related to preservation work for building restoration. The deducted amount depends on the building’s parameters and can be €700 or €1.100 or €1.200 per square meter.

Employers’ contribution to:

Employer’s medical fund – 1% on employee’s remuneration
Employer’s pension fund – 10% on employee’s remuneration

Bad debts (total sum).

Expenses from the purchase of shares in an innovated business up to 31^st of December 2016.

Expenses which cannot be deducted from corporate income:

Salary bonuses which have not been reported to the Social Insurance office.

Any interest arising from the purchase of a private vehicle for the initial seven years.

Expenses from a purchase of a private vehicle, as well as vehicle expenses such as petrol or maintenance.

General bad debt provision.

Doubtful debt provision.

Losses to be expected

Taxable losses acquired during an assessment year, which cannot be set off against any other income of the same year, are carried forward for a period of five years and then set off against future profits.

Since the 1^st of January 2015, a Cyprus tax resident company may claim the tax losses of a group company which is a tax resident of another EU country, taking into consideration that EU company primarily uses all options available to utilise company’s losses in the country of residence or in the country of any intermediate EU holding company.

An individual trader and/or a partnership, introducing business into a company, can bring forward tax losses into the company and hence balance it with future profits.

The losses of a permanent establishment abroad can be balanced with the profits of Cyprus resident company.

Group Taxation

If two Cyprus tax resident companies are members of the same group for an entire assessment year, the taxable losses of one such company may be set off against the taxable profits of the other company. Such a group must include a Cyprus company which holds (directly or indirectly) as a minimum 75% of the voting shares of another Cyprus tax resident company; or two or more Cyprus tax resident companies are at least 75% (of voting shares) held, directly or indirectly, by a third company.

Reorganisations

Assets and liabilities transfer between companies, provided there is a company reorganisation, can be tax free.

Reorganisation includes:

Transfer of assets
Partial divisions
Mergers and demergers
Activity transfers
Share exchange
European company (SE) or European cooperative company (SCE) registered office transfer

Special Industries

Insurance companies – the taxation varies according to the percentage of life insurance premiums.

Shipping Industry – shipowners/ship managers/charters may choose to be taxed under tonnage tax instead of corporate tax with significant advantages (certain conditions may apply).

Alternative Investment Funds (AIFs):

AIFs which are controlled and managed in Cyprus, following the general provision of corporate tax, however the overall tax approach is dependent on the structure and components a fund may have.

Different legal forms:

– Alternative Investment Funds Limited Number of Persons (AIFLNP):

Limited Partnership
Variable Capital Investments Company
Fixed Capital Investment Company

– Alternative Investment Funds with Unlimited Number of Persons (AIFs) and Registered AIFs (RAIF):

Common Fund
Limited Partnership
Variable Capital Investments Company
Fixed Capital Investment Company