What is the Corporation’s Tax rate in Cyprus?

The Corporation Tax Rate in Cyprus is 12.5%. A tax resident of Cyprus will consequently be taxed on its profits arising from Revenue — Expenses. Any income from in Cyprus, or abroad, will be subject to income tax except specific sources of income such as Dividend Income taxed at 0%. A non-Cyprus tax resident is a Cyprus Company which has no management and control in Cyprus meaning all decision are taken outside Cyprus. In addition, an overseas Company which has a PE (Permanent Establishment) in Cyprus only incomes coming/arising from sources in Cyprus will be taxed in Cyprus.

The Cyprus Tax legislation provides for a number of exemptions, for example, varied types of incomes, profits, and gains (see the Cyprus Tax Outlook 2022 for more information).

Another important and interesting exemption is the 80% exemption for IP related sources of income again subject to specific conditions.

If a Company is subject to the IP Box, the corporation Tax rate (effective) is 2.5%. IP Box Regime is a corporate tax regime practiced in many countries. It is used to stimulate research and development. However, Cyprus has the lowest IP tax rate in the European Union. The source of income for IP Box Companies is revenues from licenses, royalties, sale or transfer of qualified IP assets.

Determining a company’s income:

1. Inventory valuation — The cost and Net value are typically stated lower than they are.
2. Capital Gains — The Corporation Tax on the profit of selling/disposing an asset that has increased in value. ‘Titles’ (Shares, bonds, debentures, etc.) are exempt unconditionally from the CIT.
3. Dividend income — This is when dividends are received either from Cyprus Tax Resident companies or from foreign investments. They are exempt from all taxes in both cases.In Cyprus, Capital Gains and immovable property that are situated in Cyprus, are taxed separately.

Exemptions for Corporation Tax in Cyprus

• Firstly, Interest Income that is exempt from Corporation Tax

1. Arising in an ordinary business course. This includes interest closely connected with business going about their daily business.
2. Interest earned by open or closed ended collective investment schemes.

• Secondly, Dividend income that is exempt from Corporation Tax

1. Ownership interests or the disposal of profit from securities. This can be in an open-ended or close-ended investment scheme. It includes redemption securities.
2. The Profits from an establishment if it happens to be situated outside the Republic of Cyprus.
3. Income from the rent of a preserved building.

Income Tax filings and payments in Cyprus

In Cyprus, The Tax year is the same as the calendar year. Therefore, Tax returns are to be filed by 31st December, after the tax year.

For the Income Tax office to accept a Tax Return of any Cyprus Company the Company has to have a professional auditor carry out the audit of the Financial Statements. The auditor then submits the Tax Return on behalf of the Company.

Temporary Tax returns are due on the 1st August of the Tax year. You are able to pay Temporary Tax in 2 equal installments during the Tax year; August 1st and December 31st. You are able to pay any balance of Tax the following year 1st of August.

Defense Contribution Tax for Cyprus Residents

Interest income

• Business activity that earns Interest.
• Interest on the ordinary activities of a business and Interest earned by open or close ended investment schemes will not be considered for defense contribution.

All residents of the Republic of Cyprus, as a result, will have to pay defense contributions on certain sources of their income;

• Government Savings Certificates that earns individuals Interest.
• Government Bonds that earned an individual Interest.
• Interest earned by an approved provident Fund.
• Social Insurance Fund that earned interest.
• Rental income, if it is less than 25%.

Deemed distribution

This applies to the profits of Cypriot Tax resident companies.

As per the Special Defence Contribution Law, Companies which do not distribute at least 70% of their profits after tax, as defined by the relevant tax law, within two years after the end of the relevant tax year, will be deemed to have distributed as dividends 70% of these profits.

The amount of deemed distribution is reduced by any actual dividends paid out of the profits of the relevant year at any time. This special contribution for defence is payable by the Company for the account of the shareholders.

Deemed Distribution of Dividends is applied when the ultimate beneficial shareholders are both Cyprus tax residents and Cyprus domiciled.

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Original Article

Corporation's Tax rate in Cyprus