All companies that are tax residents in Cyprus are taxed at a corporation tax rate of 12,5% from 1 January 2013 (10% for the previous years since 2003) on their profit derived both in Cyprus and abroad. A company is tax resident in Cyprus if it is managed and controlled from Cyprus.
The following types of income are exempt for taxation purposes:
- Profits from the trading in securities or qualifying titles
- Dividend income (under certain circumstances)
- Interest not derived from the ordinary course of business or not closely related to the ordinary course of business
Tax Losses Carried Forward
Tax losses which cannot be set off against income in the current year may be carried forward and set off against future profits for a period of five years. Alternatively, the current year losses of a company can be set off against the current year profits of another company provided the companies are tax resident in Cyprus and belong to the same group for tax purposes
A group is defined as two companies which are linked with a link of more than 75% (i.e. either one company owning at least 75% of the shares of another company or at least 75% of the voting shares of both companies are held by the same company).
Restructuring and Reorganisations
Assets may be transferred between companies without any tax liabilities in the case of reorganisations. Reorganisations include mergers, demergers, transfer of assets and partial divisions.
Special Defence Contribution
Special contribution for defence is imposed on rents, interest and dividends earned by Cyprus tax residents. Non-tax residents are exempt from special contribution for defence. More specifically:
- Dividends received by Cyprus resident companies are exempt from taxation except . The only exception relates to dividends received from a Cyprus resident company which are taxed at 17% (20% for the years 2012 and 2013) if 50% of the activities of the company paying the dividend result directly or indirectly from investment income and the foreign tax is significantly lower clarified by the tax authorities to mean below 5%Â than the tax burden in Cyprus.
- Interest income arising from the ordinary activities of the Cyprus resident company or closely related to the ordinary activities will be exempt from special defence contribution. Other interest is subject to 30% special defence contribution
- 75% of the rent received by a Cyprus tax resident company is taxed under special defence contribution at a rate of 3%.
Deemed Dividend Distribution
Where a Cyprus tax resident company does not distribute dividends within two years from the end of the tax year in which the profits were generated, then 70% of the adjusted accounting profits are deemed to have been distributed and a 17% special defence contribution is imposed on the deemed dividend distribution (20% for the years 2012 and 2013) applicable to shareholders which are Cyprus tax residents.
Capital Gains Tax
Capital gains arising from the disposal of immovable property situated in Cyprus as well as capital gains from the disposal of shares in a company which holds immovable property in Cyprus are taxed under capital gains tax at the rate of 20%.
On certain types of documents there may be a liability for stamp duty which is imposed at the rate of 0.15% for the first €170,860 and 0.2% thereafter, subject to a maximum amount of €17,086.
In cases where a shipping company incorporated in Cyprus owns ships which operate under the Cyprus flag and the operations take place in international waters, no liability for corporation tax arises on profits or any dividends distributed.
Double Taxation Treaties
Cyprus has an extensive network of Double Taxation Treaties with a number countries across the world. When tax is sufferred by the Cyprus company in the treaty partner's country, that amount is deducted as a credit against the tax liability arising in Cyprus for the same income.
Value Added Tax
Value Added Tax (VAT) is imposed on the supply of goods and services in Cyprus by Cyprus registered entities or individuals, on the acquisition of goods or services from the European Union and on the importation of goods into Cyprus. The standard rate of VAT is 19%, but reduced rates of 9% or 5% apply for certain goods and services.