A company is considered to be tax resident in Cyprus if its management and control is exercised in Cyprus.
Cyprus tax resident companies are taxed on their worldwide income. Non-Cyprus tax resident companies are taxed only on income generated in Cyprus.
The taxable period for a company in Cyprus is the calendar year i.e. from 01/01 to 31/12.
Every company needs to submit an annual tax return within 15 months from the year-end to which it relates.
The Tax Authorities may issue a tax assessment within 6 years from the end of the tax year to which the tax return relates.
Corporation tax in Cyprus is levied at a flat rate of 12.5%. Resident trading companies, subject to certain exceptions for holding companies, and companies trading in shares / securities pay one of the lowest taxation in Europe on their net profits.
Dividend income of a Cyprus company from foreign investments is exempt from tax in Cyprus. No minimum holding period is required. The only case whereby dividend income from foreign investments is taxable in Cyprus is if:
more than 50% of the foreign investment’s income is derived from investment activities; and
the foreign tax payable by the paying company is less than 5%.
Dividend income of a Cyprus company from another Cyprus company is exempt from tax in Cyprus.
Dividend payment by a Cyprus company to a foreign shareholder (company or individual) does not suffer any withholding tax. Dividend payment by a Cyprus company to another Cyprus company does not suffer any withholding tax. Dividend payment by a Cyprus company to a Cyprus tax resident individual suffers 17% withholding tax.
Active interest income (i.e. interest earned in the normal course of business of a company) is subject to income tax at the rate of 12.5%. Any expenses incurred wholly and exclusively for the production of such income are allowed as tax-deductible. Passive interest income (i.e. interest earned not in the normal course of business of a company) is subject to special defense contribution tax at the rate of 30%. Any expenses incurred for the production of such income are not allowable as a tax-deductible.
Interest expense is tax-deductible only if incurred wholly and exclusively for the production of taxable income.
Cyprus does not impose any withholding tax on payments to foreign recipients. There is no withholding tax on the payment of interest by one Cyprus Company to another Cyprus company.
Royalty income is subject to income tax at the rate of 12.5%. Under the Cyprus IP regime, the legislation provides for an 80% exemption of royalty income from patent rights and intellectual property rights.
Royalty expense incurred wholly and exclusively for the production of taxable income is allowed as tax-deductible.
Cyprus does not impose any withholding tax on royalty payments to foreign recipients if the right/asset is used outside of Cyprus. If the royalties are connected with the use of the right/asset within Cyprus then there is a 10% withholding tax. Such withholding tax may be reduced by treaty provisions or if applicable by the EU Interest & Royalties Directive.
The tax loss in Cyprus incurred during the year is carried forward and set off against future profits for a period of five years
The Cyprus tax system allows for Cyprus resident companies to form a group for tax purposes whereby tax losses may be transferred between members of the tax group. A tax group is created when:
One company is the 75% subsidiary of another company; or
Two companies are 75% subsidiary of another company.
The disposal of shares of a Cyprus company by its foreign shareholder is exempt from taxation in Cyprus. The only exemption is when the Cyprus Company owns immovable property situated in Cyprus. In such a case there is 20% capital gains tax.
The disposal of immovable property situated in Cyprus is subject to capital gains tax at the rate of 20%. The disposal of financial assets including shares and bonds is exempt from capital gains tax.
Capital losses of a given year cannot be set-off against taxable profit from other sources. However, they may be carried forward indefinitely and be set-off against capital gains in future years.
Stamp duty is imposed on documents or agreements if they relate to things and matters done in Cyprus (e.g. disposal of property situated in Cyprus, disposal of shares of Cypriot company by its Cyprus parent). Stamp duty is imposed on the value of a contract as follows:
0% on the first €5,000
0.15% on the next €165,000
0.20% above €170,000
However, stamp duty is capped at the maximum of €20,000.
VAT is levied on the supply of goods and services in Cyprus and the import of goods in Cyprus from inside/outside the EU.
The standard rate of VAT is 19%.
The reduced rates of VAT are 9%, 5% and 0%.
Leasing or letting of immovable property, the supply of immovable property with the exception of buildings or parts of buildings and the land on which they stand if the application for a building permit was submitted after the 01/05/2004, financial services, lotteries, medical care, social welfare, education, sports, cultural services, insurance transactions are exempt from VAT in Cyprus.
The registration threshold for VAT purposes in Cyprus is €15,600 (€10,251 for intra-community acquisition of goods).
Filing of VAT returns and the payment of VAT liability is made every 3 months.