Corporation Tax, Losses Carried Forward & Reorganisations.
As of 1 January 2013, all companies which are tax resident in Cyprus are taxed at 12.5% on income accrued or derived from all sources both in Cyprus and abroad. A company is considered to be tax resident in Cyprus if it is managed and controlled from Cyprus.
The following types of income are exempt from taxation:
- Profits from trading in securities
- Interest which does not arise from the ordinary activities of the company or closely related to the ordinary activities of the company.
Losses Carried Forward
Tax losses in one year which cannot be set-off can be carried forward and set-off against future profits for up to 5 years. Alternatively, current year losses can be set-off against profits made by another company if both companies are tax resident in Cyprus and are both of a Group.
A Group is defined as:
- One company holding not less than 75% of share in another company
- At least 75% of voting shares of both companies are held by another company
Assets and liabilities can be transferred without any tax implications with a Reorganization structure and tax losses may then be carried forward by the receiving company. Reorganizations include mergers; demergers; transfer of assets; partial divisions.
Special Defence Contribution
A special defence contribution is in some instances imposed on income earned by Cyprus tax residents. Non-tax residents are exempt from this special defence contribution.
- Dividends received from Cyprus resident companies are not subject to special defence contribution
- Dividends received from abroad are also exempt
- This tax exemption will not apply if 50% of the activities of the company which pays the dividend arise directly or indirectly from investment income and the foreign tax imposed is significantly lower (below 6.25% than the tax in Cyprus). In these cases, dividends will also be subject to special defence contribution taxed at 17% from 2014 onwards
- Interest arising from the ordinary activities, or closely related to the ordinary activities of the company resident in Cyprus will be exempt from special defence contribution
- As of 29 April 2013, other interest is subject to 30% special defence contribution
Deemed Dividend Distribution
If a Cyprus resident company does not distribute dividends within 2 years from the end of the tax year in which profits were made then:
- 70% of the adjusted accounting profits are considered to have been distributed.
- Special defence contribution at a rate of 17% from the year 2014 onwards is imposed on the deemed dividend distribution applicable to Cyprus resident shareholders.
- Deemed dividend distribution is offset with payments of actual dividends which have already been paid during the relevant year or during the 2 subsequent years from the profits of the relevant year.
If the Cyprus Company is completely owned by non-resident individuals, then special defence contribution will not be imposed.
Capital Gains Tax
Profit from the disposal of immovable property situated in Cyprus, including profit from the disposal of shares in companies which hold immovable property in Cyprus, will be subject to 20% Capital Gains Tax.
On certain documents, there may be stamp duty imposed at the rate of 0.15% for the first €170,886 and 0.2% on subsequent amounts, capped at €17,086.
Cyprus International Trusts are not taxed in Cyprus.
This means that:
- All the income of a Cyprus International Trust, whether trading or otherwise, is not taxed.
- Dividend, interest and other income received by a Cyprus International Trust from a Cyprus company is not taxed and it is not subject to withholding tax.
- Profits from the disposal of assets held by a Cyprus International Trust are not subject to Capital Gains Tax.
No income tax will be payable on profits earned or dividends paid in a Cyprus shipping company owns ships under the Cyprus flag or foreign flag and operate in international waters.
Double Taxation Treaties
Cyprus has concluded over 45 Double Tax Treaties. Essentially, this means that when tax is paid in the treaty partner’s country, then this sum is offset from the amount of tax payable in Cyprus for the same income.
Value Added Tax
Value Added Tax (VAT) is imposed on the provision of good and services in Cyprus on goods from the European Union and on imported goods into Cyprus. As of 31 January 2014 the standard VAT rate in Cyprus is 19%.