All companies tax resident of Cyprus should pay taxes on all their income derived or accrued from all their sources either in Cyprus or abroad.
A company is considered as tax resident of Cyprus if the essential management of the company is exercised in Cyprus meaning that the place of effective management is Cyprus.
It is generally accepted that the following conditions should be met so as a Company is a Cyprus Tax resident.
- All strategic decisions should be taken in Cyprus by the directors who exercise their duties in Cyprus.
- The majority of the Board of Directors of the company should be tax resident in Cyprus exercise their duties from Cyprus.
- The meetings of the Board of Directors should take place in Cyprus.
- The books and records of the company should be kept in Cyprus.
The Cyprus corporate tax rate is 12,5% one of the lowest in European Union.
Exemptions from tax
- Profits arise from Permanent Establishment abroad subject to certain conditions.
- Profits from sale of securities such as shares, bonds, CFD, derivatives, etc.
- Dividend income subject to certain conditions.
- Interest income subject to certain conditions.
- Gains from foreign exchange differences with the exemption of trading activities in foreign currencies (forex activities).
- Gains arise from restructuring subject to certain conditions.
Deductions from tax
- Any interest expense arises for the acquisition of 100% of the share capital of a subsidiary company (directly or indirectly) but if the subsidiary company owns assets then such assets should be used in business otherwise apportionment should apply.
- Notional Interest Deduction (NID) is a deemed interest which will reduce the taxable income up to the 80%. The NID applies where any equity introduced or derived after 1 January 2015 as a new equity to the company and these funds are used for the operation of the company. The interest rate per annum is calculated on the basis of the 10-years government bond of the country where these funds are invested plus a margin of 5%. Equity includes any type of share capital and share premium fully paid.
- 80% of the net profit from the income (mainly royalties) derived from a qualifying intellectual property calculated based on a formula of Nexus Approach.
- Amortisation of a qualifying Intellectual Property subject to certain conditions.
- Entertaining expenditure for business purposes with a limit of 1% f the gross income of the company and the maximum of €17.086.
Losses carried forward
Tax losses can be carried forward for five years and be set off against profits.
Losses used for a group relief
Losses of a company being part of a group of companies can be set off against profits of another company of the group. A company is considered as part of a group if
- One company is holding at least 75% of the shares of the other company.
- The 75% of the voting rights of the two companies are held by another company who is a tax resident of an EU country or a country where Cyprus has a double tax treaty or agreed to exchange information.
