Cyprus Tax Regime
Companies which are tax resident in Cyprus are taxed at 12,5% on their income accrued or derived from all sources both in Cyprus and abroad. A company is tax resident in Cyprus if the effective management and control is exercised in Cyprus. The test applied in determining exercise of effective management and control in Cyprus is that the majority of the appointed directors in the board of directors are Cypriots or residing in Cyprus and the majority of the shareholders’ meetings are held in Cyprus.
The following categories of income are exempted for taxation purposes:
- Profits from the trading in securities;
- Dividend income for non Cyprus residents;
- Interest not arising from the ordinary activities or closely related to the ordinary activities of the company.
Losses Carried Forward
Corporation tax is imposed on business profits, interest, discounts, rents, royalties, remunerations or other profits from property and net consideration in respect of trade goodwill. Expenses incurred for the production of income are tax deductible. Companies will be able to carry forward tax losses incurred over the next five years from the end of the tax year in which they were incurred, to be offset against taxable income.
Tax losses of one year which cannot be set off against other income may be carried forward and set off against future profits. Alternatively, the current year losses of a company can be set off against the profits of another company provided the companies are tax resident in Cyprus and are part of a group. A group is defined as: (a) one company holding at least 75% of the shares of another company and,
(b) at least 75% of the voting shares of both companies are held by another company.
Special Defence Contribution
All residents of the Republic are subject to special defence contribution on certain sources of income. Non Cyprus residents are not subject to special defence contribution. In respect of a company Defence tax is payable (the applicable rate is currently 20%) only when the owner (ultimate beneficial owner) of the company is Cyprus tax resident.
Deemed Dividend Distribution
Where a Cyprus resident company does not distribute dividends within two years from the end of the tax year in which the profits were generated, then:
70% of the adjusted accounting profits are deemed to have been distributed; 15% special defence contribution is imposed on the deemed dividend distribution applicable to Cyprus resident shareholders.
Stamp duty is payable on a document where an agreement relates to an asset located in Cyprus or to a matter or thing to be done or performed in Cyprus irrespective of where the agreement is signed. Stamp duty on commercial contracts is charged at rates that vary according to the contract amount. The maximum stamp duty payable on a contract is capped at €20,000 irrespective of the value of the subject matter thereof.
Value Added Tax
Value Added Tax (VAT) is imposed on the provision of goods and services in Cyprus, on the acquisition of goods from the European Union and on the importation of goods into Cyprus. The current rate of VAT is 19%.
Annual Levy on Registered Companies
All Cyprus companies, either dormant or not, (or group of companies) should pay the amount of €350 as from the year of their registration. In any subsequent year the levy must be paid not later than 30th June of each relevant year. In the case of groups of companies, the total amount of levy to be paid by all companies will not exceed the amount of €20,000. Such amount shall be spread equally between the companies of the group.
Cyprus companies required to pay the levy and who do not pay the levy in the prescribed period, but the levy is paid within two months from the due date, a penalty of 10% applies. The levy is further increased to 30% if the levy is paid within five months from the due date. If the levy is not paid within five months from the due date, the department of the Registrar of Companies and Official Receiver will remove the company from the list of registered companies.