Basis of taxation
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 establishment in Cyprus and on certain income arising from sources in Cyprus.
A company is a resident of Cyprus if it is managed and controlled in Cyprus.
Foreign taxes paid can be credited against the corporation tax liability.
Tax rate
The corporation tax rate for all companies is 12,5 %.
Type of income and exemption limit
- Profit from the sale of securities (1) – The whole amount
- Dividends – The whole amount (2)
- Interest not arising from the ordinary activities or closely related to the ordinary activities of the company (3) – The whole amount (4)
- Profits of a permanent establishment abroad, under certain conditions – The whole amount
Notes:
1. For a definition of securities see “Personal income tax” page.
2. Such dividend income may be subject to Special Contribution for Defence.
3. All the interest income of Collective Investment Schemes is considered to be arising from the ordinary activities or closely related to the ordinary activities of the Scheme.
4. Such interest income is subject to Special Defence Contribution.
Corporate tax deductions for expenses
Generally expenses incurred wholly and exclusively in earning taxable income and supported by documentary evidence are deductible for corporate tax purpose, including:
- 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. 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 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 if the subsidiary owns (directly or indirectly) assets not used in the business.
- 80% of the net royalty income from owned intangible assets as well as 80% of the net profit emanating from the disposal of intangible assets (1,2) – 80%
- Donations to approved charities (with receipts) – The whole amount
- Employer’s contributions to social insurance and approved funds on employees’ salaries – The whole amou
- Any expenditure incurred for the maintenance of a building in respect of which there is a Preservation Order – Up to €700, €1.100 or €1.200 per square meter (depending on the size of the building)
- Entertainment expenses for business purposes Lower of €17.086 or 1% of the gross income of the business
Notes:
1. The term ‘intangible assets’ includes copyrights, patents
and
2. Additionally any expenditure of a capital nature incurred for the acquisition or development of such intangible assets may be claimed as a tax deduction in the year in which it was incurred and the immediate four following years on a straight line basis.
Tax deductions are not including:
- 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.
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.
Reorganisations
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 include:
- mergers
- demergers
- partial divisions
- transfer of assets
- exchange of shares
- transfer of registered office of a European company (SE) or a European cooperative company (SCE).
Annual wear and tear allowances on tangible fixed assets
The following allowances which are given as a percentage on the cost of acquisition are deducted from the chargeable income:
| Plant and machinery | % |
| Plant and machinery (1) | 10 |
| Furniture and fittings | 10 |
| Industrial carpets | 10 |
| Boreholes | 10 |
| Machinery and tools used in agricultural business | 15 |
| Buildings | % |
| Commercial buildings | 3 |
| Industrial, agricultural and hotel buildings (2) | 4 |
| Flats | 3 |
| Metallic greenhouse structures | 10 |
| Wooden greenhouse structures | 33 1/3 |
| Vehicles and means of transportation | % |
| Commercial motor vehicles | 20 |
| Motor cycles | 20 |
| Excavators, tractors, bulldozers, self-propelled loaders and drums for petrol companies | 25 |
| Armored motor vehicles (used by security services) | 20 |
| Specialised machinery for laying of railroads | 20 |
| New airplanes | 8 |
| New helicopters | 8 |
| Sailing vessels | 4,5 |
| Motor yachts | 6 |
| Steamers, tugs and finished boats | 6 |
| Ship motor launches | 12,5 |
| New cargo vessels | 8 |
| New passenger vessels | 6 |
| Used cargo / passenger vessels | Over their useful lives |
| Other | % |
| Televisions and video | 10 |
| Computer hardware and operating systems | 20 |
| Application software | 33 1/3 |
| Expenditure on application software less than €1.709, is written off in the year of acquisition | …. |
| Wind power generators | 10 |
| Photovoltaic systems | 10 |
| Tools in general | 33 1/3 |
| Video tapes property of video clubs | 50 |
Notes
1. Plant and machinery acquired during the tax years 2012, 2013 and 2014 are eligible to accelerated tax depreciation at the rate of 20% (excluding such assets which are already eligible for a higher annual tax rate of tax depreciation).
2. In the case of industrial and hotel buildings which are acquired during the tax years 2012, 2013 and 2014, an accelerated tax depreciation at the rate of 7% per annum may be claimed.