Income Tax - Companies

Companies resident in Cyprus are liable to income tax in accordance with the Income Tax Law (Law No. 118(I) of 2002 , as amended) in respect of their worldwide income. A company is resident in Cyprus, if its management and control are exercised in Cyprus. Non- tax residents are liable to tax in respect of Cyprus source income only. However, non-tax residents having a permanent establishment in Cyprus may elect, if it is to their benefit, to be taxed in accordance with the provisions applicable to tax residents. The income liable to income tax includes, inter alia, trade income, income from salaried services, pensions, interest, dividends, royalties, any amounts of trade goodwill, etc. The Law stipulates for various exemptions, provided certain conditions are satisfied.

Tax rate

• Corporate income tax 12,50% (as of Jan 2013)

Tax exemptions

Interest derived not from the ordinary activities or from closely related activities of the company	All
Profits form the disposal of securities	All
Profits form permanent establishments abroad (Under certain conditions)	All
Dividends Received	All

Tax deductions

	Limit
Expenses Incurred wholly and exclusively in earning the income of the company	All
Donations to charities approved by the Council of Ministers	€ 34.172,00 – Plus 50% of the amounts paid in excess , in case of a tax loss , any part of the loss up to the amount of the donation cannot be carried forward
Employer’s annual contributions to approved funds concerning employee’s salaries	All
Expenditure incurred for the maintenance of listed buildings for which there has to be either a Preservation order or certificate by the Minister of Interior that the expenses are in respect of preservation work for restoring the building	Up to € 700,00, € 1.100,00 or € 1.200,00 per square meter depending on the size of the building
Bad debts incurred (Provided all the procedures required have been followed)	All
Entertaining expenses incurred for business purposes	Up to 1% of the total gross income or € 17.086,01 whichever is the lowest

The following expenses are not deducted from companies’ income:

• Expenses of a private saloon car (i.e. petrol, maintenance costs etc.)
• Interest attributes 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

The tax loss incurred during a year which cannot be set off against other income is carried forward subject to conditions and set off against the profits of the next five years. Losses in respect of the years up to 2007, which were not set off against profits up to the year 2012, may not be carried forward to the year 2013.

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 exist when:

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

Conditions that should be met for utilization 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

Within the framework of reorganization transfers of assets and liabilities between companies can be effected without any tax consequences.

Wear and Tear Allowance ratesWear and Tear Allowance rates are estimated as a percentage on the cost of acquisition of fixed assets and are deducted from the taxable income of a company.

Categories	Annual allowance %
Machinery and Equipment
Machinery and Equipment	10
Furniture and fittings	10
Industrial carpets	10
Televisions and Videos	10
Farming / animal husbandry	15
Computer hardware and operating software	20
Vehicles
Saloon cars	Nil
Van / Taxis / Trucks / Buses / Pick-up and Motorcycles	20
Tractors / Excavators / Bulldozers	25
Loose tools
Loose tools	33.33
Video tapes of video clubs	50
Buildings
Commercial buildings	3
Industrial / Agricultural / Hotels / Tourist villages / Tourist apartments	4
Flats	3
Metallic greenhouse structures	10
Wooden greenhouses structures	33.33
Application software
Cost of acquisition in excess of €1,708.60	33.33
Cost of acquisition lower than €1,708.60	100
Ships
Sailing vessels lighters	4.5
Steamers / Tugs / Trawlers	6
Motor launches	12.5
Second hand vessels	by special agreement
New passenger ships	6
New cargo ships	8
Various / Others
Photovoltaic systems and Wind power generators	10
New airplanes and helicopters	8
Armored vehicles (Security services industry)	20
Locomotive engines, ballast wagon, container wagon and container sleeper wagon	20

Insurance companiesInsurance 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

• Profits or Dividends payable by a shipping company registered in Cyprus, which owns ships registered on the Department of Merchant Shipping in Cyprus and operates in International waters are exempted from Income Tax
• Ship management companies providing services to vessels under other flags have a choice to be either i) taxed at 4,25% on profits or ii) pay tonnage tax at the rate of 25%
• The salaries of officers and crew of a ship under Cyprus Flag, which operates in international waters, are exempted from Income Tax

Tax rates for Income Tax since 1991

£	1991 - 1995	1996 - 2002	2003 - 2004	2005 - 2007
0 - 40,000	20% (1,2)	20% (1,2)	10% (3,4)	10% (3,4,5)
40,001 - 100,000		25% (1,2)
100,001 - 1,000,000	25% (1,2)
1,000,000 +			15% (5,6)

 

For the years 2008 to 2012 companies pay tax on all their income at the rate of 10% (4).
From 2013 companies pay tax on all their income at the rate of 12,5%.

Notes

• For tax years up to 2002 an additional tax of 10% is imposed when the taxable income is reduced due to losses of prior years, deductions for investments and deductions for the depletion of a mine are given
• International activity companies are taxed at the rate of 4,25%. During the year 2002 an additional tax of 10% on taxable income is imposed on public corporate bodies
• International activity companies that elected for transitional tax 7 rules are assessed at 4,25% instead of 10% for years to 2005
• Public corporate bodes are assessed at a rate of 25% instead of 10% up to tax year 2008
• International activity companies that elected for transitional tax 8 rules ate assessed at 4,25% instead of 15% for the years to 2005
• Public corporate bodes are assessed at a rate of 35% instead of 15%
• The option for the transitional provisions relates to international activity companies that:
  • Had income from sources outside the Republic during the tax year ending 31/12/2001 or are expected to have such income that has not arisen, due to the nature of its activities, up to 31/12/2001 and
  • Continue to have income exclusively from sources outside the Republic. The option is
    • irrevocable
    • applies to tax years 2003-2005
    • Companies that make this option are not allowed to claim
      • the exemption of 50% of interest income
      • The exemption of dividend income (except in the case where the dividend is between companies which have the same status i.e. they have both elected for the option)
      • the exemption for profits on the sale of titles
      • Group relief of losses
      • Tax benefits from re-organizations
      • Credits for foreign tax (except where there is a Double taxation Treaty in force)
      • Exemption for the profits of a permanent establishment overseas
    • losses that arose during any year up to and including the year 2000 will not transferred and offset with income of any tax year after the passing of 5 years from the end of the tax year in which they occurred