A Q&A guide to tax on corporate transactions in Cyprus.
The Q&A gives a high level overview of tax in Cyprus and looks at key practical issues including, for example: the main taxes, reliefs and structures used in share and asset sales, dividends, mergers, joint ventures, reorganisations, share buybacks, private equity deals and restructuring and insolvency.
To compare answers across multiple jurisdictions, visit the tax on corporate transactions Country Q&A Tool.
The Q&A is part of the global guide to tax on transactions. For a full list of jurisdictional Q&As visit www.practicallaw.com/taxontransactions-guide.
1. What are the main authorities responsible for enforcing taxes on corporate transactions in your jurisdiction?
The Tax Department within the Ministry of Finance administers all nationally imposed taxes, including income tax, corporate income tax, capital gains tax (CGT), special defence contribution (SDC), stamp duty and value added tax (VAT).
Pre-completion clearances and guidance
2. Is it possible or necessary to apply for tax clearances or obtain guidance from the tax authorities before completing a corporate transaction?
There is no requirement to obtain advance tax clearance. However, for the convenience of taxpayers, the Tax Rulings Division of the tax department will, on application by or on behalf of a taxpayer, issue advance tax rulings regarding actual transactions (including series of transactions) relating to tax years for which the due date for filing a tax return has not yet passed, and transactions proposed to be undertaken by existing or new entities.
Requests for rulings must be in writing and must include at least the following information:
- The name and tax identification code of the parties involved in the relevant transaction and the name of any group of companies of which any parties are members.
- Confirmation that all the parties have filed all the tax returns due.
- A summary of the matter in respect of which the ruling is sought, including a description of the relevant business activities or transactions (or series of transactions), giving a sufficient explanation of the tax issue under consideration.
- Detailed factual analysis of the transaction(s) relating to the request.
- The question(s) on which a ruling is required.
- References to the relevant tax legislation, tax circulars or practices of the tax department, and to any relevant case law.
- The applicant's assessment of the appropriate tax treatment.
Requests are dealt with in the order in which they are received unless the Commissioner of Tax is satisfied that there are reasonable grounds for issuing an expedited ruling on a particular matter at the taxpayer's request. A fee of EUR1,000 is payable for a standard ruling. The taxpayer can request an expedited ruling, guaranteeing a response within 21 working days, provided all the necessary information is supplied, in which case the fee is EUR2,000.
In its response to a ruling request the tax department will not necessarily limit itself to the specific question in the request. It can include any tax consequences that in its opinion flow from the transactions specified in the ruling request, even if the applicant did not request an opinion on these matters.
Rulings will be binding only with regard to the taxpayers specifically mentioned in the ruling request, and provided that both:
- The facts and circumstances presented in the ruling request continue to be applicable.
- There is no subsequent change in the tax law which renders the ruling inapplicable.
The Tax Rulings Division will express an opinion on the applicable tax treatment of the hypothetical transaction or scenario presented to it and will not be responsible for verifying the facts presented by the applicant.
In the event of any subsequent discrepancy between the scenario presented in a tax ruling request and the actual transactions undertaken, the relevant District Tax Office can either:
- Decline to apply the tax ruling.
- Inform the Tax Rulings Division of the actual facts, asking it to confirm or modify the initial ruling.
Disclosure of corporate transactions
3. Is it necessary to disclose the existence of any corporate transactions to the tax authorities?
Circumstances where disclosure is required
Companies must submit a corporate income tax return to the tax department supported by audited financial statements complying with international reporting standards. There is a self-assessment system requiring estimates and payments on account to be to be submitted before 31 July and 31 December of the tax year, and the final return and payment to be made by the following 1 August. Companies must also submit other ad hoc returns, such as:
- Annual returns of tax deducted from payments to employees.
- Returns of dividends paid and special contribution for defence (SDC) withheld.
- Returns of deemed dividend distributions for the purposes of SDC (see Question 6).
Manner And Timing Of Disclosure
The time allowed for submission of the corporate income tax return is 15 months after the end of the year to which the return relates. For example, the return for the year ended 31 December 2016 must be submitted by 31 March 2018. Returns must be submitted electronically via the tax department's TAXISnet system.
MAIN TAXES ON CORPORATE TRANSACTIONS
Transfer taxes and notaries' fees
4. What are the main transfer taxes and/or notaries' fees potentially payable on corporate transactions?
Stamp duty is a tax on documents similar to UK stamp duty. A stampable document (broadly, a contract, wherever created or executed, governing a transaction relating to property in Cyprus or anything done in Cyprus) which is not stamped with the correct amount of duty paid cannot be adduced in evidence in court without payment of the duty and appropriate penalty.
The stampable contracts most frequently encountered in corporate transactions include:
- Share purchase agreements.
- Asset purchase agreements.
- Joint venture agreements.
- Subscription and shareholder agreements.
Rates of stamp duty are as follows:
- On transactions with a consideration of up to EUR5,000, no stamp duty is payable.
- On transactions with a consideration of between EUR5,000 and EUR170,000, stamp duty of EUR1.5 for every EUR1,000 (or part of EUR1,000) is payable.
- On transactions with a consideration in excess of EUR170,000, stamp duty of EUR2 for every EUR1,000 (or part of EUR1,000) is payable.
Where no amount of consideration is specified in the contract the stamp duty is EUR35. The maximum stamp duty payable on a contract is capped at EUR20,000. For a transaction which is evidenced by several documents, stamp duty is payable at the usual rate on the main contract and ancillary documents are charged at the flat rate of EUR2.
A number of categories of documents are exempt from stamp duty, including documents relating to corporate reorganisations (which are exempt from all forms of taxation) and ship mortgage deeds or other security documents.
Stamp duty must be paid within 30 days from the date of execution of the relevant documents or, if they are executed abroad, within 30 days after they are received in Cyprus. If stamp duty is paid late, a surcharge of approximately 10% of the unpaid amount is payable, provided payment is made within six months after the due date. Otherwise, the surcharge for later payments is twice the unpaid amount.
Stock transfer fees
Stock transfer fees are payable by corporate entities selling shares quoted on the Cyprus Stock Exchange (CSE) at 1% of sale proceeds.
Land transfer fees
Land transfer fees are payable by a corporate buyer or donee of real property in Cyprus when title deeds are issued by the Department of Land and Surveys. If VAT is payable on the property no transfer fee is payable. Otherwise, the transfer fee is charged at progressive rates on successive tranches of the acquisition price (or market value of gifts) as follows:
- Up to EUR85,000: 1.5%.
- EUR85,000 to EUR170,000: 2.5%.
- Over EUR170,000: 4%.
Corporate and capital gains taxes
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.