Cyprus Companies Taxation

CORPORATE TAX

Companies that are tax residents in Cyprus are liable to tax on their worldwide income, which is received both in Cyprus and abroad. For companies, which are non-tax residents, but carry out business 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 provided that they are managed and controlled in Cyprus.

THE FOLLOWING EXPENSES ARE NOT DEDUCTED FROM THE COMPANIE’S INCOME:

TAX LOSSES

• Tax losses can be set off against profits from other activities. If in the same year there are no profits from other activities tax losses can be carried forward and set off against taxable income without time limit. This provision is applicable for all losses incurred from 1997 tax year onwards
• A partnership or a sole trader transferring business into a company can carry forward tax losses into the company and offset it with future profits
• A company in Cyprus can set off losses from a permanent establishment abroad against profits from the company in Cyprus. Any subsequent profits of the permanent establishment abroad should be taxed in Cyprus to the extent of the allowable losses, which were set off

GROUP LOSS RELIEF

Group loss relief is the offsetting of the tax loss of one company in the group with the taxable income of another company in the same group. Group loss relief is allowed if both companies are tax residents in Cyprus.

Group of companies exists when:

• A company is holding 75% of the voting rights of the other company, or
• Both the companies are 75% owned by a third company

Conditions that should be met for utilisation of group loss relief:

• The companies have been members of the group for the whole tax year
• Tax losses can only be offset with tax profits of the same year

REORGANISATIONS

Within the framework of reorganisation transfers of assets and liabilities between companies can be effected without any tax consequences. 
Reorganisations are defined as

• mergers
• demergers
• transfer of assets in exchange of shares
• exchange of shares, and
• transfer of registered office of a European company (SE) or a European cooperative company (SCE)

WEAR AND TEAR ALLOWANCE RATES

Wear and tear allowances are estimated as a percentage on the cost of acquisition of fixed assets and are deducted from the taxable income of a company.

INSURANCE COMPANIES

Insurance companies are liable to tax like any other companies. But in the case where the corporation tax payable is less than 1,5% of the gross insurance premiums, insurance companies must pay the difference as additional corporation tax.

SHIPPING COMPANIES

The Merchant Shipping Legislation fully approved by the EU provides for exemption from all direct taxes and taxation under tonnage tax regime of qualifying shipowners, charterers and shipmanagers, from the operation of qualifying community ships (ships flying a flag of an EU member state or of a country in the European Economic Area) and foreign (non-community) ships (under conditions), in qualifying activities.

The legislation allows non community vessels to enter the tonnage tax regime provided the fleet is composed by at least 60% community vessels. If this requirement is not met, then non community vessels can still qualify if certain criteria are met.

The salaries of officers and crew of a ship under the Cyprus flag, which operates in international waters, are also exempted from income tax.

DEFENCE TAX

• Defence tax is imposed on income earned by a Cyprus tax resident
• Non-tax residents are exempt from defence tax
• Applies to both legal and physical person
• Interest received as a result of the carrying on of a business activity, including interest closely connected to the ordinary activities of the business is exempt from defence tax (e.g. interest received on current a/c – interest received by banks on loans and overdrafts)

VAT

Taxable persons charge VAT on their taxable supplies (output VAT) and are charged VAT on goods or services received (input VAT).

• If input tax > output tax = repayment is due from the state. 
• If output tax > input tax = payment has to be made to the state.

REGISTRATION

Registration is compulsory for business:

• with turnover in excess of €15.600 in a year or with an expected turnover in excess of €15.600 in a period of thirty days following
• which make acquisitions of goods from other EU member states in excess of €10.250 during any calendar year
• which are engaged in the supply of intra-Community services for which the recipient must account for VAT under the reverse charge rules (NIL registration threshold)
• which are  carrying out economic activities where they receive any services from abroad for which an obligation to account for Cyprus VAT under the reverse charge provision exists (threshold of €15.600 exists)

Exempt goods and services and transactions of capital nature are not taken into consideration when determining the annual turnover for registration purposes.

Businesses that do not match any of the above stated criteria have the option to register if they wish to do so.

VAT PAYMENT / RETURN OF VAT

VAT returns are prepared on a quarterly basis and must be submitted by the 10th day of the second month that follows the month in which the tax period ends. Any payable VAT arising for the quarter must be paid prior to the submission of the return.

Where in a quarter input tax is higher than output tax, and therefore a repayment is due, the difference is refundable or is transferred to the next VAT quarter to be credited against any payable account.

VAT RATES

• Zero rate (0%)
• Reduced rate (5%)
• Reduced rate (9%)
• Standard rate (19%)

ZERO RATED GOODS AND SERVICES (0%):

• Exports to non EU countries
• Supply, modification, repair, maintenance, chartering and hiring of sea going vessels which are used for navigation on the open sea and which are carrying passengers for reward or used for the purpose of commercial, industrial and other activities
• Supply, modification, repair, maintenance, chartering and hiring of aircrafts used by airlines operating for reward mainly or international routes
• Supply of services to meet the direct needs of sea going vessels and aircrafts
• Transportation of passengers from Cyprus to a place outside Cyprus and vice versa using a sea going vessel or aircraft
• Supplies of Gold to the Central Bank of Cyprus
• Commissions received from abroad for import and export of goods

REDUCED RATE IN GOODS AND SERVICES 

• Hotel accommodation (9%)
• Restaurants and catering services (9%)
• Transportation of passengers and their accompanying luggage within Cyprus using urban, intercity and rural taxis and tourist and Intercity buses (9%)
• Movement of passengers in inland waters and their accompanying luggage (9%)
• Supply of fertilizers, animal feeding products and seeds (5%)
• Supply of live animals for human consumption (5%)
• Books, magazines and newspapers (5%)
• Non-bottles water (5%)
• Liquid gas (5%)  
• Supply of Foodstuffs (5%)
• The supply of pharmaceutical products and vaccines that are used for healthcare purposes (5%)
• Various goods for the use of handicapped persons (5%)
• Ice cream and similar products (5%)
• Funeral service and supply of coffins (5%)
• Road sweeping, garbage collection and recycling (5%)
• Services of authors, composers and artists (5%)

EXEMPTIONS

• Rental of Immovable property
• Hospital and most medical services
• Most insurance, banking and financial services
• Educational services
• Management services provided to mutual funds
• Supplies of real estate, excluding new buildings before their first use but including supplies of land and of secondhand buildings
• Postal services provided by the national postal authority
• Lottery tickets and betting coupons for football and horse racing.

DIFFERENCE BETWEEN ZERO RATING AND EXEMPTION

Businesses that make exempt supplies are not entitled to recover VAT with which they have been charged on their purchases, expenses or imports (VAT input).

IRRECOVERABLE INPUT VAT

• Sale of exempt supplies
• Purchase, import or hire of saloon cars
• Directors' housing expenses
• Entertainment and hospitality expenses (except expenses relating to employees and directors)

CYPRUS ACCESSION TO THE EU

​General rule. This refers to supply of goods and services between Member States and their VAT treatment. The general rule for intra-EU supplies is:

• For business to business (B2B) sales VAT is due in the Member State where the customer belongs;
• For business to consumer (B2C) sales VAT is due in the Member State where the supplier belongs.

Exceptions to the general rule. According to the VAT Directive there is a vide list of exemptions from the general rule, transferring VAT inter alia to the location of transactions, services, real estate, or shifting VAT taxation from customer to supplier and vice versa.

Examples of exemptions:

• B2B and B2C services connected with immovable property are taxed where the immovable property is located;
• B2C services consisting of valuations of or works on movable tangible property are taxed at the place where the services are physically delivered;
• B2B and B2C passenger transport is taxed according to the distances covered;
• B2C intra-Community transport of goods (goods departing from one Member State and arriving in another) is taxed at the place of departure;
• B2B services in respect of admission to cultural, artistic, sporting, scientific, educational, entertainment and similar events and activities will be taxed at the place where those events and activities actually take place;
• B2B and B2C short-term hiring of means of transport is taxed at the place where the means of transport is actually put at the disposal of the customer;
• from 1 January 2015 B2C telecommunications, broadcasting and electronically supplied services are taxed at the place where the private customer is established, has his permanent address or usually resides.

Triangulation trade.This is the case where three Member States are involved, there is only one actual movement of goods but two invoices are issued, one from the first country to intermediary and another from intermediary to the recipient of goods.

Under such circumstances the intermediary supplier applies the simplification procedures to avoid the need for the intermediary having register for VAT in the country of customer’s belonging and to zero-rate the sale, showing the customers company’s VAT number on the invoice. 

The simplified procedure can only be used when all three parties are registered for VAT

CAPITAL DUTY

Capital Duty is paid upon incorporation of a Cyprus company.

• Authorised share capital:  €105 plus 0,6% on the authorised share capital
• Issued share capital:  There is no capital duty payable if the shares are issued at their nominal value. There is a €20 flat duty if the shares are issued at a premium

Upon subsequent increases

• Authorised share capital: 0,6% on the additional share capital
• Issued share capital €20 flat duty on every issue, whether the shares are issued at nominal value or at a premium

CYPRUS TAX TREATIES

An up to date list of Cyprus double tax treaties can be found here

CYPRUS TABLE OF TREATY RATES

[1] The rate of 5% if a dividend is paid by a company in which the beneficial owner has invested less than EUR 150.000.

[2] 5% withholding tax if received by a company that invested in share capital not less than €200.000. 10% withholding tax if paid to a person holding at least 25% of the capital. In all other cases 15%.

[3] A rate of 15% applies if received by a company holding less than 25% of the share capital of the paying company and in all cases if received by an individual.

[4] No WHT if paid to the government/Central Bank/ Public Authority of the other state.

[5] No WHT for interest on deposits with banking institutions.

[6]The 5% rate applies to companies holding directly at least 25% of the share capital of the company paying the dividend. In all other cases the WHT is 10%.

[7]The treaty rates do not apply if the payment is made to a Cyprus entity by a resident of Bulgaria owning directly or indirectly at least 25% of the share capital of the Cyprus entity and the Cyprus entity pays tax in Cyprus at a tax rate lower than the usual tax rate.

[8] Nil if paid to a government/Central Bank/ Public Authority or for export guarantee.

[9] Nil on literary, dramatic, musical, or artistic work (but not including royalties in respect of motion picture films and works on film or videotape for use in connection with television).

[10] Nil applies if received by a company (excluding partnership) which holds directly at least 10% of the share capital of the paying company for an uninterrupted period of no less than one year. 5% applies in all other cases.

[11]10% for patent, trademark, design or model, plan, secret formula or process, computer software or industrial, commercial, or scientific equipment, or for information concerning industrial, commercial, or scientific experience.

[12] A rate of 15% if received by a company controlling less than 10% of the share capital of the paying company or the duration of any holding is less than one uninterrupted year. A rate of 15% also applies if received by an individual.

[13] A rate of 15% applies if received by a company controlling less than 10% of the voting power in the paying company and in all cases if received by an individual.

[14] A rate of 15% if received by a company (partnership is excluded) holding less than 10% of the capital of the paying company and in all cases if received by an individual.

[15] Nil if paid to a government, bank, or financial institution.

[16] A rate of 5% on royalties for cinematographic films including films and video tapes for television.

[17] A rate of 15% if received by a company holding less than 10% of the capital of the paying company and in all cases if received by an individual.

[18] A rate of 5% on cinematographic film royalties (other than films shown on television).

[19] A rate of 15% if received by a company holding less than 10% of the shares of the paying company and in all cases if received by an individual.

[20] A rate of 10% for payments of a technical, managerial, or consulting nature.

[21] A rate of 5% if received by a company (other than partnership) holding less than 10% of the capital of the company paying the dividend and in all cases if received by an individual.

[22] A rate of 5% applies if the beneficial owner is a company (other than a partnership) which holds directly at least 25% of the capital of the company paying the dividends. A rate of 10% in all other cases.

[23] Nil rate applies if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the capital of the company paying the dividends or if the beneficial owner of the shares is the Government of Cyprus or Norway. A rate of 15% in all other cases.

[24] Nil rate applies if the recipient company (partnership is excluded) holds directly 10% of the share capital of the paying company for an uninterrupted period of at least 2 years. 5% in all other cases.

[25] 5% rate applies for patents, trademarks, designs or models, plans, secret formulas, or processes, or any industrial, commercial, or scientific equipment, or for information concerning industrial, commercial, or scientific experience.

[26] A rate of 10% on dividend if paid by a company in which the beneficial owner has invested less than EUR100.000 in the share capital of the company paying the dividend.

[27] A rate of 7% if paid to a bank or financial institution.

[28] A rate of 5% if received by a company holding less than 10% of the capital of the paying company and in all cases if received by an individual or a company not limited at least partly by shares.

[29] 0% withholding tax rate will apply where dividends are paid to a company (other than a partnership) that holds directly at least 10% of the capital of the distributing company for an uninterrupted period of at least one year. 15% withholding tax on all other cases.

[30] A rate of 15% if received by a company holding less than 25% of the share capital of the paying company and in all cases if received by an individual or a company not limited at least partly by shares.

[31] 10% rate applies on payment of royalties of any copyright of literary, artistic or scientific work including cinematograph films, and films or tapes for television or radio broadcasting. A rate of 15% applies on payments of royalties of any patent, trade mark, design or model, plan, secret formula or process, or any industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience.

[32] A rate of 10% on interest received by a financial institution or when it relates to sale on credit of any industrial, commercial, or scientific equipment or of merchandise.

[33] A rate of 5% applies for any copyright of literary, dramatic, musical, artistic, or scientific work. A 10% rate applies for industrial, commercial, or scientific equipment. A 15% rate applies for patents, trade marks, designs or models, plans, secret formulas, or processes.

[34]A rate of 15% if a dividend is paid by a company in which the beneficial bowner holds less than 20% of the share capital of the paying company and the beneficial owner has invested less than Eur 100.000.

[35] A 5% WHT will be levied on payment of royalties in respect of any copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience. 10% WHT will be levied in all other cases.

[36]A rate of 15% applies to individual shareholders regardless of their percentage of shareholding. Companies controlling less than 10% of the voting shares are also entitled to a rate of 15%. Companies controlling at least 10% of the voting shares are entitled to nil WHT.

[37] A rate of 15% if received by a company controlling less than 10% of the voting power of the paying company and in all cases if received by an individual. If a company controls at least 10% of the voting power of the paying company in order to benefit from the WHT rate of 5% other conditions relating to the income of the paying company need to be satisfied, otherwise a WHT rate of 15%.