CORPORATION TAX

All companies tax resident of Cyprus are taxed on their income accrued or derived from all sources in Cyprus and abroad.

A non-Cyprus tax resident company is taxed on income accrued or derived from a business activity which is carried out through a permanent established in Cyprus and on certain income arising from sources in Cyprus.

Corporation tax rate - 12,50%

Exemptions
  • Profits of a permanent establishments abroad
  • Profits from sale of securities
  • Dividend income


Tax deductions
All expenses incurred wholly and exclusively in earning the income of the Company

Loss carried forward
Tax losses incurred from tax year 1997 onwards which was not set off against profits up to year 2002, may be carried forward to the year 2003 and the following years.

 

Special Contribution for Defence

Special contribution for defence is imposed on income earned by Cyprus tax residents indicated below.

Non-tax residents are exempt from special contribution for defence.

 

Dividends
  • Dividends income from Cyprus resident companies to Cyprus resident individuals is taxed 20%.
  • Dividend income from abroad is exempt from defence fund contribution.

This exemption does not apply if :

  • More than 50% of the paying company’s activities result directly or indirectly in investment income, and
  • The foreign tax is significantly lower than the tax burden in Cyprus. The tax authorities have clarified through a circular that ‘significantly lower’ means a tax burden rate below 5%.

 

Interest income
Interest Income is taxed at 10% up to 31 December 2011 and  15% from 1 January 2012  onwards.

Interest income arising from the ordinary activities or closely related to the ordinary activities of the business.

Interest income from Cyprus government saving bonds and development bonds and all interest earned by a provident fund is subject to special contribution for defence at the rate of 3%.

 

Rental income
Rental income reduced by 25% at a rate of 3%.

When the tenant is a company, partnership, the state or local government special contribution for defence on rental income is withheld at source. In all other cases the special contribution for defence on rental income is payable by the landlord 6 monthly intervals on 30 June and 31 December each year.


Deemed dividend distribution
A company resident in the Republic is deemed to have made a distribution of 70% of its profits after taxation in the form of dividends at the end of the two years from the end of the tax year in which the profits relate and must account for 17% defence contribution thereon.


Capital Gains Tax

Capital Gains Tax is imposed (when the disposal is not subject to income tax)  on gains from the disposal of immovable property situated in Cyprus including gains from the disposal of shares in companies which such immovable property, excluding shares listed in any recognized stock exchange.

Capital Gains Tax rate – 20%

The following expenses are not considered expenses wholly and exclusively for the production of the profit and therefore are not deductible:
a) Immovable Property Tax
b) Immovable Property Fees
c) Sewerage Council Fees

Exemptions

The following disposals of immovable property are exempt from capital gains tax:

  • transfer on death
  • gifts between spouses, parents and children and relatives up to third degree
  • gift to a company whose shareholders are members of the donor’s family and continue to be members of the family for a period of five years from the date of the gift,
  • gift by a family company to its shareholders, if the company had also acquired the property in question via donation. However if the shareholder disposes the property within 3 years then the shareholder will not be entitled to the deductions listed below,
  • gifts to charitable organisation or the Republic
  • exchange or disposal under the Agricultural Land (Consolidation) Laws,
  • exchange provided the gain is used for the acquisition of new property. The gain derived from the exchange reduces the cost of the new property and the tax is paid when the latter is disposed,
  • expropriations,
  • transfer of ownership or share transfers in the event of company reorganisations,
  • transfer of property of a missing person under administration,
  • transfer of ownership between spouses that their marriage has been dissolved by a court order or in case of tranfer of ownership between the same persons for the purpose of settling their property according to the Settlement of Property Relationships between Spouses Law.

Estate Duty

Estate Duty has been abolished since 1 January 2000.

The administrator of the estate of the deceased is required by the Deceased Persons Estate Law, to submit to the tax authorities a statement of assets and liabilities of the deceased within six months from the date of death.


Value Added Tax

VAT imposed on the provision of goods and services in Cyprus, as well as on the acquisition of goods from European Union and the importation of goods into Cyprus.

Taxable persons charge VAT on their taxable supplies and are charged with VAT on goods or services which they receive.

Vat rates:     Zero rate (0%)
Reduced rate of five per cent   (5%)
Reduced rate of eight per cent (8%)
Standard rate of e eighteen cent (18%)

 

 

Difference between zero rate and exempt supplies

The difference between zero rate and exempt supplies is that businesses that make exempt supplies are not entitled to recover the VAT charged on their purchases, expenses or imports.

As from 1 January 2010 significant changes came into effect in the EU and Cyprus Vat legislation in the following areas:

  • Changes in the country of taxation of services provided between businesses established in two different EU Member States
  • Changes in country of taxation of services, supplied to consumers
  • Changes in the time of supply of services for which VAT is due by the recipient
  • Procedure for refund of VAT paid in another Member State
  • Additional compliance obligation for electronic submission of the monthly VIES return for services subject to VAT in another EU MS monthly VIES return for services subject to VAT in another EU MS through the reverse charge provisions

Immovable Property tax

Immovable property tax is imposed on the market value as at 1 January 1980 and applies to the immovable property owned by the taxpayer on 1 January of each year.



Property Value

Tax Rate

Accumulated Tax

%

Up to 120.000           

nil

nil

120.001-170.000

4%

200

170.001-300.000

5%

650

300.001-500.000

6%

1.200

500.001-800.000

7%

2.100

Over 800.001                              

8%

 


The above bands and rates are applicable from 1 January 2012


Trusts

A trust established by an individual ‘the settlor’ and is a means whereby property ‘the Trust Property’’ is held by one or more persons ‘the Trustees’ for the benefit of another or others ‘the Beneficiaries’ or for specific purposes.

International trusts

International Trusts (i.e a Trust whose property is located and income is derived from outside Cyprus) are governed by the International Trust Law of Cyprus.

International Trusts are not taxed in Cyprus.

All income, whether trading or otherwise, of an International Trust is not taxable in Cyprus.


Personal Income Tax

All Cyprus residents are taxed on all income accrued or derived from sources in Cyprus and abroad.

Individuals who are not tax residents of Cyprus are taxed on income accrued or derived from sources in Cyprus.

An individual is tax resident in Cyprus if he spends in Cyprus more than 183 days in any one calendar year.



Chargeable Income   

Tax rate

Accumulated tax

 

0-19.500

nil

nil

19.501-28.000

20%

1.700

28.001-36.300           

25%

3.775

36.301-60.000

20%

7.198

Over 60.001  

35%

 


-50% exemption will apply to income of a non-resident person taking up residence in Cyprus to work for an employer in Cyprus, effective from 1 January 2012. This exemption applies for a period of 5 years starting from the first year of employment provided that annual income of the employee exceeds Euro 100.000 per annum.