Taxation Facts

Companies that are Tax Residents in Cyprus pay tax on their worldwide income that can be received in Cyprus or abroad. For companies, which are non-tax residents but carry their activities through a permanent establishment in Cyprus, are liable to tax only on the income derived in Cyprus. Companies are considered as Cyprus tax Residents if their management and control is in Cyprus.

TAX RATES FOR CORPORATIONS

ALL companies besides Semi-governmental organisations 12,5 %

TAX DEDUCTIONS

>Expenses incurred wholly and exclusively in earning the income of the company All
>Donations to approved charities (with receipts) All
>Employer’s annual contributions to approved funds concerning employees’ salaries All
>Bad debts incurred (if all the required procedures have been followed) All
>Expenditure for scientific research All
>Expenditure on patents All
>Interest in relation to the acquisition of business assets used in the business provided in concerns a taxable activity All

The following expenses that are not deducted from companies’ income such as:

>Fines and penalties.
>Mortgage fees.
>Unrealised foreign exchange loss.
>Expenses of a private saloon car (i.e. petrol, maintenance costs, etc).
>Payment for immovable property tax.
>Interest attributable to acquiring private saloon cars, and to assets not used in the business is not deductible for 7 years. After 7 years this interest will be deductible for tax purposes
>Any expenses not made wholly and exclusively for the purpose of trade

CYPRUS HOLDING COMPANY

Cyprus is one of the most beneficial and adaptable “Holding Company regimes” currently available in the world.  Besides the numerous tax benefits, double taxation treaties network and the adoption of EU directives there are also other important features beneficial to Cyprus holding companies. They are mentioned below:

1. Income from dividends is tax free

2. Profits of the sales of shares are tax free

Profits from the sales of shares in other companies are income tax exempt in Cyprus. This is based upon the general tax exemption, applicable in Cyprus, for profits from the sales of securities. “Securities” are defined as “shares, bonds, debentures, founders’ shares and other securities of companies or other legal person, incorporated under a law in Cyprus or abroad, including option thereon.
An exception only applies and taxation at 20 % will take place if a profit is realized upon the sales of shares in certain (non-listed) companies owning Cyprus real estate, to the extent such profit reflects the gain from the sale of the underlying Cypriot real estate.

3. Profits from activities of a Permanent Establishment abroad are tax free

Profits from a Permanent Establishment (PE) outside Cyprus are tax-exempt and its losses can be set –off against Cyprus income. This exemption does not apply if the PE carries on more than 50 % of investment activities-passive income – and the overseas tax burden is much lower than the Cyprus tax burden.
This exemption in conjunction with the use of some Cyprus DTTs can result in PE profits avoiding tax altogether.

4. Capital gains on disposal of capital assets are tax free

No capital gains or income tax is payable on the liquidation of participations or the liquidation of the Cypriot Holding Company it.