Answer ... 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).
Answer ... 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.
Answer ... Income tax is levied on an annual basis at a rate of 12.5% on the entity’s net taxable profits.
Answer ... 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.
Answer ... 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.
Answer ... 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.
Answer ... The concept of beneficial ownership of taxable income does not apply.
Answer ... No, a single 12.5% tax rate applies irrespective of the size of the income or assets of the taxpayer.
Answer ... 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.