Corporate tax in Cyprus

Summary

Corporate Income Tax Rate (%) 12.5
Capital Gains Tax Rate (%) 20
Branch Tax Rate (%) 12.5
Withholding Tax (%)
Dividends 0 (a)
Interest 0
Royalties from Patents, Know-how, etc. 0 (b)
Branch Remittance Tax 0
Net Operating Losses (years)
Carryback 0
Carryforward 5 (c)

a) A Special Contribution to the Defence Fund at a rate of 17% is withheld from dividends paid to resident and domiciled individuals.

b) A 5% rate applies to royalties paid with respect to films and television. A 10% rate applies to other royalties if the asset for which the royalties are paid is used in Cyprus.

c) Effective from 1 January 2012, losses can be carried forward to the following five years (previously indefinitely).

Taxes on corporate income and gains

Corporate income tax. Companies resident in Cyprus are subject to income tax on their worldwide income. A company is resident in Cyprus if its control and management are located in Cyprus. Nonresident companies are taxed only on income derived from a permanent establishment in Cyprus and on rental income from property located in Cyprus.

Rate of corporate tax. The standard rate of company tax is 12.5%.

Capital gains. A capital gains tax of 20% is levied on gains deriv­ed from the disposal of immovable property located in Cyprus and from the disposal of shares in companies whose assets in­clude immovable property located in Cyprus (except for shares of companies listed on a recognized stock exchange). A gain is the difference between the sales proceeds and the original cost, ad­justed to take into account increases in the cost-of-living index.

A gain from the disposal of immovable property that consists of land or land and buildings is exempt from capital gains tax if the property is acquired between 16 July 2015 and 31 December 2016 and if it is acquired from an independent third party and not acquired through an exchange of property or through a donation or gift.

Administration. The income year in Cyprus is the calendar year. Tax is payable on 1 August following the income year. However, an estimate of tax due is made by 31 July of the income tax year, and provisional tax is payable in two equal installments on 31 July and 31 December.

Overdue tax is subject to interest beginning on the due date. In addition, a flat 5% penalty is imposed on the tax due in the event of a delay in payment.

Dividends. Dividends paid are not subject to withholding tax.

A 17% Special Contribution to the Defence Fund is withheld from dividends paid to resident and domiciled individuals. This is a final tax. Also, see Section D.

If a company does not distribute as dividends at least 70% of its after-tax accounting profits within two years after the end of the relevant income year, a 17% Special Contribution to the Defence Fund is imposed on a deemed distribution of 70% of the profits. For the purposes for determining the amount of profit subject to deemed distribution, any capital expenditure incurred in the ac­quisition of plant and machinery (excluding private saloon cars) and buildings during the period of 2012 through 2014 is deducted from the after-tax profits. If a company distributes more than 0% but less than 70% of its profits, the amount of the deemed distri­bution subject to tax is reduced by the amount of the actual dis­tribution. The tax on a deemed distribution is reduced propor­tionally by the percentage of shares held directly or indirectly by nonresidents and non-domiciled residents.

Deemed distribution does not apply to profits that are directly or indirectly attributable to shareholders that are nonresidents of Cyprus.

Non-domicile rule. A Cyprus resident individual who is not domi­ciled in Cyprus is effectively not subject to the Special Contribution to the Defence Fund in Cyprus on interest, rents or dividends regardless of whether such income is derived from sources within Cyprus and regardless of whether such income is remitted to a bank account or economically used in Cyprus (see Dividends and Section D). This rule is effective from 16 July 2016.

Foreign tax relief. Foreign tax on profits and gains of a Cyprus resident company is credited against Cyprus tax payable. Such foreign tax relief cannot exceed Cyprus tax payable on the same profits or gains.

Determination of trading income

General. An assessment is based on accounts prepared in accor­dance with generally accepted accounting principles, subject to certain adjustments and provisions. Expenses must be incurred wholly and exclusively for the production of income.

Inventories. Inventory is generally valued at the lower of cost or net realizable value. Cost must be determined under the first-in, first-out method. The last-in, first-out method is not acceptable.

Depreciation and amortization allowances

Plant and machinery. A straight-line allowance of 10% a year is given on capital expenditures for plant and machinery. For machin­ery and plant acquired during 2012, 2013 and 2014, a deduction for wear and tear at 20% per year is allowed.

Industrial buildings. A straight-line allowance of 4% a year is avail able for industrial buildings. For industrial and hotel build­ings acquired during 2012, 2013 and 2014, a deduction for wear and tear at 7% is allowed.

Commercial buildings. A straight-line allowance of 3% a year is allowed for commercial buildings.

Office equipment. A straight-line allowance of 20% a year is allowed for computers. Other office equipment is depreciated under the straight-line method at an annual rate of 10%. For other office equipment acquired in 2012, 2013 and 2014, a deduction for wear and tear at a rate of 20% per year is allowed.

Motor vehicles. In general, a straight-line allowance of 20% a year is allowed for motor vehicles (except for private saloon cars).

Sales of depreciable assets. On disposal of an asset, if sale pro­ceeds are less than the remaining depreciable base, a further allow­ance is granted, up to the difference. If sale proceeds exceed the depreciable base, the excess (up to the amount of allowances re­ceived) is included in taxable income.

Taxation of intangible assets. The cost of the acquisition or devel­opment of intangible assets of a capital nature is amortized equal­ly over a five-year period.

Eighty percent of the profits arising from the use of intangible assets (including compensation for improper use of such assets), as well as profits from sales of the assets, is deemed to be an expense in determining taxable income.

The 80% deduction applies to profits after deducting all direct expenses, including but not limited to amortization of the assets and interest expenses to finance the acquisition or development of the assets.

Relief for losses. Effective from 1 January 2012, losses can be carried forward to the following five years. Loss carrybacks are not allowed.

Groups of companies. Group loss relief for a loss incurred in an income year is allowed between resident group companies that meet certain conditions.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax, on any supply of goods or
services, other than an exempt supply, made
in Cyprus by a taxable person (taxable if
annual supplies exceed EUR15,600) in the
Course of business
0 / 5 / 9 / 19
Payroll taxes
Social insurance contribution, levied on each
employee’s gross salary, up to EUR4,533 a
Month; payable by both employer and employee
7.8
Special Cohesion Fund, levied on gross salary;
Payable by employer
2
Human Resource Development Authority and
Redundancy Fund, levied on gross salary, up
To EUR4,533 a month; paid by employer
1.7
Leave Fund, levied on gross salary, up to
EUR4,533 a month; paid by employer in lieu
of holiday pay (employer may obtain exemption
From contribution to this fund)
8
Special contribution; levied on emoluments for
Amounts exceeding EUR1,500; maximum rate
3.5
Special Contribution to the Defence Fund
On rents received (after allowing for a 25%
Deduction)
3
On interest received (except for interest earned
In the ordinary course of business)
30
On dividends received by resident and domiciled
Individuals
17

Miscellaneous matters

Foreign-exchange controls. Cyprus does not impose foreign-exchange controls.

Mergers and demergers. No taxes arise in mergers and demergers with respect to transfers of businesses, assets or shares.

Treaty withholding tax rates

 

.                       Dividends

.                                %

Interest

%

Royalties

%

Armenia 0 (u) 5 5
Austria 10 0 0
Azerbaijan (z) 0 0 0
Belarus 5/10/15 (a) 5 5
Belgium 10/15 (d) 10 0
Bulgaria 5/10 (h) 7 10
Canada 15 0/15 (b) 0/10 (r)
China 10 10 10
Czech Republic 0/5 (y) 0 10
Denmark 0 (s) 0 0
Egypt 15 15 10
Estonia (z) 0 0 0
Finland 5/15 (l) 0 0
France 10/15 (f) 0/10 (e) 0/5 (g)
Germany 5/15 (m) 0 0
Greece 25 10 0/5 (g)
Guernsey 0 0 0
Hungary 5/15 (h) 0/10 (b) 0
Iceland 0 0 0/5
India 10/15 (f) 0/10 (b) 15
Ireland 0 0 0/5 (g)
Italy 15 10 0
Kuwait 0 0 5
Kyrgyzstan (z) 0 0 0
Lebanon 5 5 0
Lithuania 0/5 0 5
Malta 0/15 0/10 (b) 10
Mauritius 0 0 0
Moldova 5/10 (h) 5 5
Montenegro (aa) 10 10 10
Norway 0/15 0 0
Poland 0/5 (cc) 5 5
Portugal 10 10 10
Qatar 0 0 5
Romania 10 0/10 (b) 0/5 (c)
Russian Federation 5/10 (k) 0 0
San Marino 0 0 0
Serbia (aa) 10 10 10
Seychelles 0 0 5
Singapore 0 7/10 (o) 10
Slovak Republic (bb) 10 10 (v) 5 (r)
Slovenia 5 5 (v) 5
South Africa 0 0 0
Spain 0/5 (j) 0 0
Sweden 5/15 (h) 0/10 (b) 0
Syria 0/15 (d) 0/10 (b) 10/15 (n)
Tajikistan (z) 0 0 0
Thailand 10 0/10/15 (p) 5/10/15 (q)
Ukraine 5/15 (w) 2 5/10 (x)
United Arab Emirates 0 0 0
United Kingdom 0 10 0/5 (g)
United States 0/5/15 0/10 (i) 0
Uzbekistan (z) 0 0 0
Non-treaty countries 0 0 0 (t)

a) The rate is 10% for dividends paid to a company holding directly at least 25% of the capital of the payer. The rate is 5% if the recipient of the dividends has invested at least EUR200,000 in the share capital of the payer.

b) The rate is 0% for interest paid to the government of the other contracting state.

c) The rate is 0% for royalties paid for literary, artistic or scientific works, as well as for film and television royalties.

d) The lower rate applies to dividends paid to a company holding directly at least 25% of the capital of the payer.

e) The rate is 0% for interest paid to the government of the other contracting state and for interest paid on bank loans or with respect to credit sales of industrial, commercial or scientific equipment or merchandise.

f) The rate is 10% for dividends paid to a company holding directly at least 10% of the share capital of the payer.

g) The rate is 5% for film and television royalties.

h) The rate is 5% for dividends paid to a company holding directly at least 25% of the share capital of the payer.

i) The rate is 0% for interest paid to a government, bank or financial institution.

j) The 0% rate applies if the beneficial owner is a company (other than a part­nership) holding at least 10% of the capital of the company paying the divi­dends. The 5% rate applies in all other cases.

k) The rate is reduced to 5% if the recipient has invested at least EUR100,000 in the share capital of the payer.

l) The 5% rate applies if the beneficial owner is a company (other than a part­nership) holding at least 10% of the voting power of the capital of the com­pany paying the dividends. The 15% rate applies in all other cases.

m) The 5% rate applies if the recipient of the dividends is a direct beneficial owner of at least 10% of the capital of the company paying the dividends. The 15% rate applies to other dividends.

n) The rate is 10% for royalties paid for literary, artistic or scientific works, or for films or television. The rate is 15% for payments for the use of industrial, commercial or scientific equipment.

o) The rate is 7% for interest paid to banks and financial institutions.

p) The 0% rate applies to interest paid to the government. The 10% rate applies to interest paid to banks. The 15% rate applies in other cases.

q) The rate is 5% for royalties paid for literary, artistic or scientific works, or for film or television. The rate is 10% for payments for the use of industrial, commercial or scientific equipment.

r) The rate is 0% for royalties paid for literary, dramatic, musical or artistic works.

s) The 0% rate applies if any of the following circumstances exists:

  • The beneficial owner of the dividends is a company (other than a partner­ship) that holds directly at least 10% of the capital of the company paying the dividends if such holding has been maintained for an uninterrupted period of at least 12 months.
  • The beneficial owner of the dividends is the other contracting state, the central bank of the other contracting state or a national agency or other agency (including a financial institution) owned or controlled by the gov­ernment of the other contracting state.
  • The beneficial owner of the dividends is a pension fund or similar institution providing pension schemes in which individuals may participate to secure retirement benefits if such pension fund or similar institution is established, recognized for tax purposes and controlled in accordance with the laws of the other contracting state. The 15% rate applies to other dividends.

t) A 5% rate applies to royalties paid with respect to films and television. A 10% rate applies to other royalties if the asset for which the royalties are paid is used in Cyprus.

u) A 5% rate applies if the beneficial owner of the dividends has invested in the capital of the payer company less than the equivalent of EUR150,000 at the time of the investment.

v) A 0% rate applies if the interest is paid to the government, a local authority or a central bank.

w) The 5% rate applies if the dividend recipient holds at least 20% of the capital of the dividend paying company or has invested at least EUR100,000 in such company. The 15% rate applies in all other cases.

x) The 5% rate applies to royalties paid with respect to copyrights of scientific works, patents, trademarks, secret formulas or processes, or information con­cerning industrial or commercial experience. The 10% rate applies to other royalties, particularly for literary works, music works, films and software.

y) The 0% rate applies if the beneficial owner is a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends and if such holding is maintained for an uninterrupted period of at least one year. The 5% rate applies in all other cases.

z) The treaty between Cyprus and the USSR still applies.

(aa) The treaty between Cyprus and the Socialist Republic of Yugoslavia still

applies.

(bb) The treaty between Cyprus and Czechoslovakia still applies.

(cc) The 0% rate applies if the beneficial owner of the dividends is a company

that holds at least 10% of the capital of the company paying the dividends

for a continuous period of at least 24 months.

Cyprus has signed treaties with Bahrain, Georgia, Iran and Switzerland, but these treaties have not yet been enacted.