Ordinary partnerships and limited liability partnerships are not taxable entities in themselves for income tax purposes. The partnership prepares returns of income and a set of accounts and each partner declares his respective share of profit or loss in his personal tax return together with any other income he may have.
Branches
Foreign investors wishing to carry on a business can do so either through a Cyprus registered subsidiary, or through a branch registered under s.347 of the Companies Law.
Generally, the tax advantages and disadvantages of each form of organisation must be considered on a case by case basis. The corporation tax rates are the same whether the foreign investor is trading as a branch or a company but the determination of the chargeable income will be different. As a result, the overall tax burden as well as the provisions of relevant double tax treaties are important factors to be considered. Other important factors from the Cyprus tax viewpoint are:
- transfer pricing, regarding exchange of goods and services between a subsidiary in Cyprus and its foreign parent company, is subject to an arm's length test that may result in different amounts being taxable or deductible
- branch profits may be remitted to head office free of withholding tax
- a subsidiary can be financed by its parent through intercompany loans at an arm's length interest rate. Such expense is generally not deductible for a branch, unless it can be demonstrated that a loan has been arranged with an outside borrower for the exclusive purpose of financing the branch operations
- Subsidiaries are Cypriot enterprises and, therefore, qualify for reduction or exemption from foreign withholding taxes on foreign source investment income (interest, dividends etc. afforded by double tax treaties. Branches, however, are not covered by these treaties.
The contents of this article are intended to provide a general guide to the subject matter. Specialist advice should be obtained before any action is taken.