Corporation Tax | Defense Tax | VAT | Tax Diary | DTAs | Treaty Rates
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.
| CORPORATION TAX RATES | |
| Profits (€) | Rates(%) |
| Semi-government organisations | 25 |
| Other companies | 10 |
| TAX DEDUCTIONS | |
| The following expenses are deducted from the income of the company: | |
| Expenses | Limit |
| Expenses incurred wholly and exclusively in earning the income of the company | All |
| Donations to approved charities (with receipts) | All |
| Employer's annual contributions to approved funds concerning employees' 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 €512,58, €939,73 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 | Lower of €17,086,01 and 1% of gross revenues |
| Expenditure for scientific research | All |
| Expenditure on patents or patent rights or royalties | All |
| Interest in relation to the acquisition of business assets used in the business provided in concerns a taxable activity | All |
The following expenses are not deducted from companies' income:
- Expenses of a private saloon car (i.e. petrol, maintenance costs etc).
- Interest attributable 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.
- Fines and Penalties
- Mortgage Fees
- Unrealised foreign exchange loss
- Payment for immovable property tax
- Any expenses not made wholly and exclusively for the purpose of trade
TAX LOSSES
· Tax losses can be offset 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 exist 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 and
- exchange of shares
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. Please contact us for the detailed information in regards to the Percentage of Allowances
INTRENATIONAL BUSINESS UNITS (IBU)
As of 1st of January 2003, Cyprus International Business Entities are subject to corporate tax rate of 10%.
For IBU who had the option to continue with the previous tax regime (4,25%) for the years 2003, 2004 and 2005, provided that they had income or commercial activity in 2001, the following provisions do not apply during the transitional period when computing the taxable income:
- Exemption of 50% on interest income
- Exemption for dividend received from abroad
- Exemption from disposal of securities
- Group relief for losses
- Expenses for reorganisations
- Losses that can be carried forward start from year 2001 onwards and not from 1997
- In the absence of double tax treaty no credit of foreign taxes can be given
- The defence fund provisions for contributions do not apply
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
- 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:
a) taxed at 4,25% on profits or
b) pay tonnage tax at the rate of 25%
- The salaries of officers and crew of a ship under the Cyprus flag, which operates in international waters, are exempted from income tax.
DEFENSE TAX
- Defense tax is imposed on income earned by a Cyprus tax resident
- Non-tax residents are exempt from defense 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 defense tax (e.g. interest received on current a/c – interest received by banks on loans and overdrafts)
VAT
Definition
Value added tax is imposed on the provision of goods and services in Cyprus, on the acquisition of goods from the European Union and on the importation of goods into Cyprus.
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 > €15.600, or acquisitions in Cyprus > €10.000 or making distance sales (sales from a person established in another member State) > €35.000 during the 12 preceding months.
- if there are reasonable grounds for believing that in a period of thirty days then beginning the thresholds as stated above will be exceeded.
Business that do not exceed the above thresholds have the option to register if they wish to do so.
VAT payment / return of VAT
VAT returns must be submitted quarterly. The payment of VAT must be made within 40 days from the end of each quarter. 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%)
- Standard rate (15%)
Zero rated goods and services (0%)
- Supplies to other member states of the European Union
- Exports
- Foods
- Medicines
- International air and sea transport
- Commission received from abroad for exportation goods
Reduced rate in goods and services (5%)
- Funeral Services and supply of coffins
- Road sweeping, garbage collection and recycling
- Services of outdoors, composers, artist, and critics of works of art
- Supply of fertilizers
- Supply of animal feeding stuffs
- Supply of seeds
- Supply of live animals used for the preparation of foods
- Non-bottled water
- Newspaper and magazines, books
- Various equipments used by handicapped persons
- Ice-cream, yoghurt and similar products
- Salted or spicy products made from cereals or potato or potato substitute
- Dry nuts salted, roasted or spicy
- Gas
- Transfers of persons and luggage by urban and rural area buses
- Repair and maintenance of private residences after three years of first residence (subject to certain conditions)
- Hairdressing services
- Entry fees to theatres, circuses, festivals, concerts, zoos, museums,., cinemas, exhibitions, , sports events, fees for using athletic centres
Reduced rate in goods and services (8%)
- Transfers of persons and luggage inland by urban and rural area taxis or by tourism, excursion or intercity buses
- Local transport of passengers by sea and air within Cyprus
- Hotel accommodation fees
- Taxi services
- Supplies of goods in the course of catering except alcoholic drinks, which are standard rated
Exemption
Certain goods and services are exempt from VAT, for example:
- Rent
- Medical Services
- Insurance and financial Services, management of Mutual Funds
- Educational services (including music Academy)
- Disposal of immovable property
For the sales of buildings for which an application was filed at the Town of Planning and Housing Department after the 1st May 2004 for the issue of building license are subject to standard rated VAT. For the purchase of buildings that is to be used as first residence and for which an application was filed for the issue of building licence after the 1st May 2004, a government grant is available (see section for government grant for the purchase of new property).
Also, the sales of buildings for which an application was filled for the issue of Planning Permition after the 1 May 2004 are subject to standard rated VAT.
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
Input VAT cannot be recovered in the following cases:
- 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
(a) Intra-community trade
This refers to supply of goods between Member States and their VAT treatment. The sales are zero rated in the first Member State if the following criteria are satisfied:
- The seller has adequate proof that the goods have left the first Member State and have entered another Member State and the buyer has an EU VAT number.
b) 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.
The intermediary supplier must apply the simplification procedures and the invoice issued to the recipient must include the phrase “VAT, EU Article 28, Simplified Invoice”.
(c) Provision of services
I. General Rule
The general rule states that services are taxable in the country from where they are provided. Therefore, provision of such 6services from Cyprus to another Member State is taxable in Cyprus at the rate of 15%.
II. Services of Third Schedule
Services falling within the 3rd Schedule (consultancy, accounting, legal, intellectual property, advertising etc) are taxable in the country of the recipient and therefore qualify for zero rate VAT in the Member State from where they are provided if the buyer has an EU VAT number. The buyer will apply the reverse charge procedures.
| TAX DIARY | |
| End of Each Month | Payroll taxes of the previous month |
| Defense tax on interest and dividends | |
| 30 April | Personal tax returns |
| Employers’ return | |
| 30 June | Submission of personal tax return by individuals who do not prepare audited accounts |
| Payment of tax balance through self assessment for the above | |
| Defense tax payment for the first half of the year | |
| 1 August | Submission of provisional tax assessment for 2008 and payment of first installment |
| 30 September | Payment of second installment of 2008 provisional tax |
| 31 December | Submission of 2007 tax returns for individuals and companies preparing audited accounts |
| Payment of 3rd installment of provisional tax | |
| Payment of defense tax for the second half of 2008 | |
CYPRUS TAX TREATIES
The following countries have double-tax treaties with Cyprus (an * indicates that the treaty is awaiting ratification):
|
|
The new Russian treaty signed in December 1998 replaces the USSR (CIS) treaty as regards Russia but not as regards the other member states of the CIS, who remain bound by the old treaty. The differences are relatively minor.
CYPRUS TABLE OF TREATE RATES
(Excluding treaties not yet in force; references to notes are in parentheses after the rates, and apply to payments in both directions unless otherwise specified; all rates are percentages; for countries not listed the rules are too complex to be stated here.)
| Country | Dividends | Royalties | Interest | |||
| Rcvd. in Cyprus | Paid from Cyprus | Rcvd in Cyprus | Paid from Cyprus | Rcvd. in Cyprus | Paid from Cyprus | |
| Austria | 10 | 10 | nil | nil | nil | nil |
| Belgium | 10 | 10 | 10 | 10 | nil | nil |
| Bulgaria | nil | nil | nil | nil | nil | nil |
| Canada | 15 | 15 | 10 | 10 (8) | 15 | 15 (11) |
| China | 10 | 10 | 10 | 10 | 10 | 10 |
| CIS | nil | nil | nil | nil | nil | nil |
| Czech Rep. | 10 | 10 | 5 | 5 (9) | 10 | 10 (12) |
| Denmark | 10 | 10 (1) | nil | nil | 10 | 10 (13) |
| Egypt | 15 | 15 | 10 | 10 | 15 | 15 |
| France | 10 | 10 (2) | nil | nil (10) | 10 | 10 (13) |
| Germany | 15 | 15 (3) | nil | nil (10) | 10 | 10 (12) |
| Greece | 25 | 25 | nil | nil | 10 | 10 |
| Hungary | 5 (1) | nil | nil | nil | 10 | 10 (12) |
| India | 15 | 15 (2) | 15 | 15 | 10 | 10 (12) |
| Ireland | nil | nil | nil | nil (10) | nil | nil |
| Italy | 15 | nil | nil | nil | 10 | 10 |
| Kuwait | 10 | 10 | 5 | 5 (9) | 10 | 10 (12) |
| Malta | (4) | 15 | 10 | 10 | 10 | 10 |
| Mauritius | nil | nil | nil | nil | nil | nil |
| Norway | nil | nil (5) | nil | nil | nil | nil |
| Poland | 10 | 10 | 5 | 5 | 10 | 10 |
| Romania | 10 | 10 | 5 | 5 (9) | 10 | 10 (12) |
| Russia | 5/10 | 5/10 | nil | nil | nil | nil |
| Slovakia | 10 | 10 | 5 | 5 (9) | 10 | 10 (12) |
| Sweden | 15 | 10 (1) | nil | nil | 10 | 10 (12) |
| Syria | nil | nil (1) | 15 | 15 (16) | 10 | 10 |
| Thailand | 10 | 10 | 10 | 10 | 5/10/15 | 5/10/15 |
| UK | 15 | nil (6) | nil | nil (10) | 10 | 10 |
| USA | 5 | nil (7) | nil | nil | 10 | 10 (14) |
| Yugoslavia | 10 | 10 | 10 | 10 | 10 | 10 |
Notes:
- 15% if received by a company holding directly less than 25% of the capital
- 15% if received by a company holding directly less than 10% of the capital
- 10% if received by a company holding at least 25% of the capital of the paying company. However, if German corporation tax on distributed profits is lower than that on undistributed profits and the difference between the two rates is 15% or more, the withholding tax is increased from 10% to 27%. In all other cases it is 15%.
- Withholding tax shall not exceed the tax chargeable on the profits out of which the dividends are paid.
- 5% if received by a company controlling less than 50% of the voting power.
- If received by a company controlling less than 10% of the voting power, thus entitled to refund of excess ACT deducted in the UK (if it controls more than 10% of the voting power, it is not entitled to the refund).
- 15% if received by a company controlling less than 10% of the voting power.
- Nil on literary, dramatic, musical or artistic work.
- Nil for literary, artistic or scientific work, film, and TV royalties.
- 5% on film and TV royalties.
- Nil if paid to a Government or for export guarantee.
- Nil if paid to the Government of the other state.
- Nil if paid to the Government of the other state, in respect of bank loans, in connection with the sale on credit of any industrial, commercial or scientific equipment or any merchandise.
- Nil if paid to a Government, banks or financial institutions.
- Nil if royalties are on literary, artistic or scientific work including films, TV films and radio broadcasting.
- 10% on copyright of literary, artistic or scientific work including cinematography films and films or tapes for TV or radio broadcasting.