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Tax Specialist Group
Corporate Tax Guide: Cyprus
Cyprus

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The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
Cyprus – entire country.
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
12,5%.
The basis of taxation for a corporation will typically be one of:
  • World income (i.e. income from all sources)
  • Territorial (i.e. only income from within the jurisdiction)
  • Territorial and remittance (income earned within the jurisdiction and income remitted into the jurisdiction)
Other basis of taxation are possible, and, if applicable, they are noted.
World income.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
No tax on foreign branches of Cyprus companies. Branches of foreign companies in Cyprus are taxed at 12,5%.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
Limited liability company, Partnership, Sole proprietorship.
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
Capital gains tax at 20% on sale of immovable property situated in Cyprus.
Capital gains tax at 20% also applies on the sale of shares in a company (not listed on stock exchange) that owns immovable property in Cyprus directly. Companies that indirectly own immovable property in Cyprus are also subject to capital gains tax if the market value of the property exceeds 50% of the market value of the shares.
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
Not permitted.
Group loss relief is available (only current year).
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
  • Reduced tax rate: No.
  • Tax Holiday: No.
  • Tax Credit: No.
  • Special Depreciation: No.
  • R&D: No.
  • Notional interest deduction: New equity introduced into a company in the form of paid up share capital or premium is eligible for annual notional interest deduction calculated as interest on the new equity. This may reduce taxable profits derived from the assets financed by the new equity by up to 80%.
  • Royalties: Deduction of 80% of net profit for royalty income from owned intangible assets as well as profit from infringement or disposal of intangibles. Additionally, 20% deduction is available for capital expenditure incurred to develop or acquire such intangibles.
  • The cost of the investment in an innovative business is a tax-deductible expense (subject to restrictions).
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
No.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
Cyprus does not have a transfer pricing regime. However, all transactions between related parties must adhere to the arm’s length principle of the tax legislation.
Many countries tax passive income earned in controlled foreign corporations (CFC’s) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
No.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
  • The dividends are exempt of tax.
  • The dividends are deductible from taxable income, but not fully (90%, for example, of the dividend is deductible).
  • The dividend is taxable, grossed up to the pre-tax amount, and a foreign tax credit claimed for foreign taxes paid.
The applicable method is noted.
Dividends from abroad not subject to corporation tax but may be subject to defence tax at 17% only if:
  • The company paying the dividend engages (directly or indirectly) by more than 50% in investment activities AND
  • The foreign tax on the income of the subsidiary is lower than 6,25%.
Foreign tax credit is available.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
Credit is allowed for any withholding tax levied abroad irrespective of the existence of a double tax treaty. Some treaties also provide for credit for underlying tax.
14. Losses
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
Losses can be carried forward 5 years. May not be carried back.
Current year group relief also possible.
Restrictions on a change of ownership.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
Yes.
  • Income Tax: > 60, most of which contain exchange of information clauses.
  • TIEA: Cyprus has signed the Multilateral Competent Authority Agreement for the automatic exchange of information under the Common Reporting Standard (CRS).
  • LOB provisions: Some treaties have LOB provisions.
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to arm’s length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
TREATYNON-TREATY
Interestarm's length0%0%
related0%0%
Dividends0%0%
Rental Real Estate0%0%
Rent – Other0%0%
Royalty – for IP rights not used in Cyprus0%0%
Royalty – from IP rights used within Cyprus5% or 10%5% or 10%
Management Fees0%0%
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
31 December.
This is the due date for filing a tax return. Where extensions are available, this is noted.
Due 15 months after year-end.
The typical tax instalment requirements are noted.
Yes – see item 20 below.
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
Due 8 months after year-end.
A provisional tax return must be filed with an estimate of the current year’s tax liability and payment is made in two instalments payable before 31 August and 31 December.
Any additional tax liability arising when the final tax computation is made is payable within 8 months of the year-end.
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
  • 6 years; 12 years in case of fraud.
If a country has exchange controls, this is noted, together with the main requirements.
No.
23. VAT
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
Yes. Standard rate of 19% with reduced rates of 9%, 5% and 0% also applying.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
Land transfer fees apply. Rates 3% - 8%.

Stamp duty also applies on contracts with a fixed amount (rates 0,15% - 0,2% (maximum €20.000 per contract)). Documents relating to assets situated outside Cyprus or transactions that take place outside Cyprus are exempt. Transactions which fall within the scope of reorganisations are also exempt.
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
No annual tax. Tax on issue of capital of 0,6% on authorised share capital.
Where significant, other taxes are noted.
Payroll taxes.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
No express rules.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
Sale of shares is not taxable unless the company sold owns immovable property in Cyprus (see item 6 above).
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
No.
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
Rulings are available on request from the tax authorities.
31. Other
Other important aspects of the tax system are noted.
N/A