Comparative Guides
Welcome to Mondaq Comparative Guides - your comparative global Q&A guide.
Our Comparative Guides provide an overview of some of the key points of law and practice and allow you to compare regulatory environments and laws across multiple jurisdictions.
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Results: 4 Answers
Corporate Tax
1.
Basic framework
1.1
Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?
 
Cyprus
The tax regime of Cyprus is determined by the central government. Tax is imposed based mainly on the following legislation:

  • the Income Tax Law of 2002 (118(I)/2002), as amended;
  • the Special Defence Contribution Law of 2002 (117(I)/2002); and
  • the Capital Gains Tax Law of 1980 (52/1980).
For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.2
What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?
 
Cyprus
An entity is tax resident in Cyprus if it is managed and controlled within Cyprus.

All Cyprus tax resident entities are subject to income tax at a rate of 12.5% on income earned or accrued from all chargeable sources.

Cyprus tax resident entities are also subject to the special defence contribution (SDC), which applies to certain types of ‘passive’ income. Specifically, SDC is levied at a rate of 30% on passive interest income, 3% on 75% of rental income and 17% on dividend income, where more than 50% of the paying company’s profits were generated from investment income and where the foreign tax burden on those profits was lower than 6.25%.

Furthermore, a Cyprus tax resident company is deemed to distribute dividends of at least 70% of its post-tax profits (subject to some adjustments) within two years of the end of the tax year to which the profits relate. The deemed dividend distribution is reduced by any actual dividends distributed within this two-year period. With regard to the remaining deemed dividend distribution, SDC is charged at a rate of 17% to the extent that the shareholders (directly or indirectly) are Cyprus tax resident and domiciled individuals.

Non-tax resident entities are subject to income tax in Cyprus on income from any business exercised through a permanent establishment in Cyprus and on certain income from sources within Cyprus (eg, rental income from property located in Cyprus or profits from the disposal of real estate in Cyprus).

Lastly, any profits arising from the direct or indirect disposal of immovable property located in Cyprus are subject to capital gains tax at a rate of 20%, irrespective of the tax residency status of the seller.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.3
Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?
 
Cyprus
Income tax is levied on an annual basis at a rate of 12.5% on the entity’s net taxable profits.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.4
Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?
 
Cyprus
While a single income tax rate (12.5%) is applied to the net taxable profits, various types of income are exempt from income tax, such as the following:

  • dividend income;
  • interest income;
  • profits from the sale of securities;
  • profits arising from foreign exchange differences (assuming that these are not generated from trading in foreign currencies); and
  • profits attributable to a foreign permanent establishment.
For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.5
Is the regime a worldwide or territorial regime, or a mixture?
 
Cyprus
Tax resident entities are subject to income tax on their worldwide income. Non-tax resident entities are subject to income tax on Cyprus-source income.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.6
Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?
 
Cyprus
Tax losses can be carried forward for up to five years.

Utilisation of intra-group current year losses (subject to a 75% holding threshold) is possible; since 2015, this has also been extended to cover losses from group companies located in other EU member states.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.7
Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?
 
Cyprus
The concept of beneficial ownership of taxable income does not apply.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.8
Do the rates change depending on the income or balance-sheet size of the taxpayer?
 
Cyprus
No, a single 12.5% tax rate applies irrespective of the size of the income or assets of the taxpayer.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
1.9
Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?
 
Cyprus
Other types of entities which are deemed transparent for tax purposes, such as partnerships and trusts, are not subject to tax in Cyprus. Their taxable profits are subject to tax at the level of the partners/beneficiaries, which will therefore depend on the location of tax residency of the partners/beneficiaries.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.
Special regimes
2.1
What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
 
Cyprus
Insurers: The taxable profits of insurers are subject to the standard income tax rules and rates. However, if the corporate tax liability is less than 1.5% of the gross premiums, the difference is paid as an additional tax.

Intellectual property: 80% of the net profits (calculated using the modified nexus fraction) earned from the exploitation of intellectual property is exempt from tax, subject to conditions and to the eligibility of the intangible assets.

Shipping: Entities which operate in the shipping industry (eg, shipowners, ship managers, charterers) may elect (this is mandatory in some cases) to be exempt from all direct taxes and instead be subject to the tonnage tax regime.

Funds: Funds which are managed and controlled from Cyprus and which have a legal form which is not tax transparent (eg, companies) are subject to tax based on the normal tax rules and rates.

Gambling: Companies regulated by the National Betting Authority are also subject to gaming tax, which is applied at a rate of 13% of net gaming revenue.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.2
Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
 
Cyprus
The transfer of assets or liabilities through a qualifying corporate reorganisation is exempt from tax, subject to conditions.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.3
Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
 
Cyprus
No, taxation is applied uniformly to net taxable profits, unless the taxpayer falls under one of the special regimes mentioned in question 2.1.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.4
What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
 
Cyprus
For entities with a functional or reporting currency other than the euro, their net taxable profits must be converted into euros.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.5
How are intangibles taxed?
 
Cyprus
80% of the net profits (calculated using the modified nexus fraction) earned from the exploitation of intellectual property is exempt from tax, subject to conditions and to the eligibility of the intangible assets.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.6
Are corporate-level deductions available for contributions to pensions?
 
Cyprus
Yes, employers’ contributions to approved pension schemes constitute tax-deductible expenses.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.7
Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
 
Cyprus
As mentioned in question 2.1, different (or additional) taxes may apply to taxpayers in the insurance and shipping sectors, among others.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.8
Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
 
Cyprus
No other surtaxes are applied to tax resident entities.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
2.9
Are there any deemed deductions against corporate tax for equity?
 
Cyprus
Yes, a notional interest deduction is available for any new equity (ie, equity introduced after 1 January 2015) which is used to generate taxable income. The amount of the notional interest deduction cannot exceed 80% of the taxable income of the entity before applying the deduction.

The notional interest deduction is calculated as the higher of:

  • the return on the 10-year government bond of Cyprus as at 31 December of the previous year, plus a margin of 3%; or
  • the return on the 10-year government bond of the country in which the equity was invested as at 31 December of the previous year, plus a margin of 3%.
For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
3.
Investment in capital assets
3.1
How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
 
Cyprus
Tax depreciation (ie, wear and tear allowances) may be offset against an entity’s taxable income. Tax depreciation is applied to the acquisition cost of the asset at a rate which depends on the type of asset.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
3.2
Are there research and development credits or other tax incentives for investment?
 
Cyprus
The tax incentives available for research and development fall within the general exemption from taxation of profits generated from the exploitation of intellectual property.

In addition, other incentives are introduced from time to time, the latest being incentives for film production studios to undertake filming in Cyprus. Subject to conditions, various tax credits and benefits are available for production company under this scheme.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
3.3
Are inventories subject to special tax or valuation rules?
 
Cyprus
There are no special tax rules for inventories. Their valuation for tax purposes follows the valuation in accordance with International Financial Reporting Standards.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
3.4
Are derivatives subject to any specific tax rules?
 
Cyprus
No, the tax treatment of derivatives will depend on the underlying asset of the derivative.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
4.
Cross-border treatment
4.1
On what basis are non-resident corporate entities subject to tax in your jurisdiction?
 
Cyprus
Non-tax resident entities are subject to income tax in Cyprus on income from any business exercised through a permanent establishment in Cyprus and on certain income from sources within Cyprus (eg, rental income from property located in Cyprus or profits from the disposal of real estate in Cyprus).

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
4.2
What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?
 
Cyprus
In general, Cyprus applies no withholding taxes on payments to non-residents, with the exception of income derived by non-residents from activities such as performances by public entertainers, technical assistance, oil and gas activities and film projections in Cyprus.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
4.3
Do double or multilateral tax treaties override domestic tax treatments?
 
Cyprus
Yes, double or multilateral tax treaties override domestic tax treatments.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
4.4
In the absence of treaties, is there unilateral relief or credits for foreign taxes?
 
Cyprus
Yes – in the absence of a treaty, Cyprus provides for a unilateral tax credit for any foreign taxes paid.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
4.5
Do inbound corporate entities obtain a step-up in asset basis for tax purposes?
 
Cyprus
No.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
4.6
Are there exit taxes (for disposed-of assets or companies changing residence)?
 
Cyprus
Currently there are no exit taxes for outbound entities. However, the full implementation of the EU Anti-Tax Avoidance Directive (expected by 1 January 2020) will introduce exit taxes.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
5.
Anti-avoidance
5.1
Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?
 
Cyprus
While Cyprus has incorporated various anti-abuse rules into its tax laws, the general anti-avoidance rules are set out in the Income Tax Law as a result of the partial implementation of the EU Anti-Tax Avoidance Directive (expected to be fully implemented by 2020).

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
5.2
What are the main ‘general purpose’ anti-avoidance rules or regimes, based on either statute or cases?
 
Cyprus
The General Anti-Abuse Rules (GAAR), which are applicable as from 1 January 2019, state that transactions which are not carried out for valid commercial reasons will give rise to tax liabilities, which will be calculated in accordance with the Income Tax Law.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
5.3
What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?
 
Cyprus
Apart from the GAAR, the following specific rules apply:

  • Interest deductibility: The deductibility of interest expenses is limited to 30% of taxable income before interest, tax, depreciation and amortisation, subject to conditions; and
  • Controlled foreign company rules – the undistributed profits of a controlled foreign company (if a Cyprus company directly or indirectly controls 50% of the foreign entity and the foreign entity is located in a low-tax jurisdiction) which arise from non-genuine arrangements are added to the Cyprus tax resident’s tax base.

Upon full implementation of the EU Anti-Tax Avoidance Directive (expected to be fully implemented by 2020), Cyprus will also introduce the required exit taxation and hybrid mismatch provisions.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
5.4
Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?
 
Cyprus
Yes, tax rulings may be obtained from the Cyprus Tax Department.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
5.5
Is there a transfer pricing regime?
 
Cyprus
In accordance with Article 33 of the Income Tax Law, all related-party transactions should be carried out at arm’s length. As from 1 July 2017, the Cyprus tax authorities introduced, via a tax circular, specific transfer pricing rules which currently apply only to intra-group financing transactions – that is, where the Cyprus resident entity obtains loans (irrespective of the source) and advances these loans to a related party. In such cases, the profit margin earned by the Cyprus resident entity should be supported by a transfer pricing study.

The rules allow entities which have a purely intermediary function to avoid conducting a transfer pricing study if their post-tax return is at least 2% of the value of the assets.

It is expected that the transfer pricing rules will be extended to cover all related-party transactions by 2020.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
5.6
Are there statutory limitation periods?
 
Cyprus
The statutory limitation period is six years.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
6.
Compliance
6.1
What are the deadlines for filing company tax returns and paying the relevant tax?
 
Cyprus
The deadline for filing the corporate tax return (Form IR4) is 12 months after the year end. However, since the introduction of electronic filing of tax returns, this deadline has been extended to 15 months after the year end.

Cyprus tax resident entities must submit and pay their temporary tax estimation in two equal instalments by 31 July and 31 December each year. A 10% additional tax is imposed on the difference between the final tax liability and the temporary tax paid if the temporary tax paid is less than 75% of the final tax liability. The final tax liability must be settled by 1 August of the year following the tax year.

Any delayed payments or submissions of tax returns/declarations give rise to additional penalties and interest.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
6.2
What penalties exist for non-compliance, at corporate and executive level?
 
Cyprus
The Assessment and Collections of Taxes Law imposes a wide array of penalties for non-compliance with tax obligations.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
6.3
Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?
 
Cyprus
As a full member state of the European Union, Cyprus participates in all required exchange of information initiatives. In addition, Cyprus participates in the Organisation for Economic Co-operation and Development’s country-by-country reporting and automatic exchange of information systems.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
7.
Consolidation
7.1
Is tax consolidation permitted, on either a tax liability or payment basis, or both?
 
Cyprus
No, tax consolidation is not permitted. However, group loss relief provisions are available, as discussed in question 1.5.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
8.
Indirect taxes
8.1
What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?
 
Cyprus
The main indirect tax is value added tax (VAT), which is currently set at 19%. Other than VAT, stamp duty may be applicable on the execution of certain documents in Cyprus.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
8.2
Are transfer or other taxes due in relation to the transfer of interests in corporate entities?
 
Cyprus
In general, the transfer of interests in corporate entities should not give rise to taxes (some exceptions apply if the entity holds immovable property in Cyprus).

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
9.
Trends and predictions
9.1
How would you describe the current tax landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
 
Cyprus
The Cypriot tax landscape is evolving and following current international trends, but at the same time the country remains one of the most favourable onshore international business jurisdictions. Within the next 12 months, full implementation of the EU Anti-Tax Avoidance Directive is expected, which will introduce exit taxation and rules relating to hybrid mismatches. In addition, it is expected that the transfer pricing rules will be extended to capture all related-party transactions.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd
10.
Tips and traps
10.1
What are your top tips for navigating the tax regime and what potential sticking points would you highlight?
 
Cyprus
Although the Cyprus tax regime is fairly straightforward, one should seek advice from industry experts early on in order to avoid potential pitfalls in the future. In particular, extra care should be taken with the value added tax rules and regulations, which are quite comprehensive and complicated, and which change frequently.

For more information about this answer please contact: Charles Savva from C.Savva & Associates Ltd