- A uniform corporation tax rate of 12.5% is applicable for all companies as from 1/1/2013.
- Exemptions from corporation tax
- Dividend income received in Cyprus by a foreign corporation is wholly exempt from tax in Cyprus.
- Profits earned from a permanent establishment abroad are fully exempt from corporation tax except if:
- More than 50% of the paying company's activities result in investment income; and
- The foreign tax is significantly lower (i.e. less than 6.25%) than the tax rate payable in Cyprus.
- Profits from the disposal of securities are not taxable for all Cyprus tax residents (individuals and companies).
- 100% of interest earned other than interest earned in the ordinary course of business (although other interest is subject to defence tax as explained below).
- Corporation tax deductions for expenses
- All expenses incurred wholly and exclusively in earning taxable income.
- Interest expense incurred for the direct or indirect acquisition of 100% of the share capital of a subsidiary company provided that the 100% subsidiary company does not own (directly or indirectly) any assets not used in the business. If the subsidiary owns (directly or indirectly) assets not used in the business, the interest expense deduction is restricted to the amount which relates to assets used in the business.
- 80% of the net royalty income from owned intangible assets as well as 80% of the net profing arising from the disposal of intangible assets.
- Donations to approved charities(with receipts).
- Employers contributions to social insurance and approved funds on employees salaries.
- Entertainment expenses for business purposes (lower of €17086 or 1% of gross income of the business). Expenses of private motor vehicle are exluded.
- Tax losses
Tax losses can be carried forward for five years to be set - off against future profits.
- Group relief
There are provisions for group relief whereby companies can transfer losses to be set off against taxable profits of other companies in the same group. Two companies will be considered as part of the same group if one is a 75% subsidiary of the other or both are 75% subsidiaries of a third company. Also, group companies must be Cyprus residents.
The tax legislation adopts the relevant EU directive whereby reorganisations, amalgamations, mergers and acquisitions can be effected without any tax implications.
- Foreign taxes paid can be credited against the corporation tax liability in Cyprus.