Corporation tax

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 is considered to be a tax resident of Cyprus if it is "managed and controlled" in Cyprus. All Cyprus tax resident companies are taxed on their income accrued or derived from all chargeable sources in Cyprus and abroad. A non- Cyprus tax resident company is taxed on income accrued or derived from a business activity which is carried out through a permanent establishmentin Cyprus and on certain income arising from sources in Cyprus.
Foreign taxes paid can be credited against the corporation tax liability.
The general rule is that Cyprus tax resident companies are subject to corporate income tax on their worldwide income at the rate of 10 percent up to 2012 and from 2013 and inwards the corporation rate for all companies is 12.5%. 
 
Exceptions

 
Type of income
 
Exception 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 
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
 
 
Exception 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 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. Group is defined as:
  • One company holding at least 75% of the voting shares of the other company
  • Both of the companies are at least 75% (voting shares) held by another third company
 
A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilisation.
 
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.
 
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:
  • Mergers
  • Demergers
  • Partial divisions
  • Transfer of assets
  • Exchange of shares
  • Transfer of registered office