• 10% corporation tax; one of the lowest rates in the EU
• The best holding company jurisdiction; 1% holding in foreign company entitles Cyprus Holding Company to tax benefits
• No inheritance tax
• No tax on the sale of shares or securities
• No withholding tax on dividends paid to non-resident shareholders
• Group losses relief without any time restrictions (under certain conditions)
• Exempt from capital gains tax apart from the disposal of immovable property in Cyprus
• Non resident companies are taxed only on income derived in Cyprus
• Optional VAT registration allows VAT imposed on local expenditure and services to be re-claimed
• 34 double taxation treaties
• Anonymity of the beneficial owners of a company
• High standards of professional services at competitive & reasonable prices
• High standard of banking system
• No exchange control

CYPRUS TAX OVERVIEW…

Corporation tax:  10%

Dividend Tax (Special Contribution for Defence):

Personal Income Tax:

Capital Gains Tax:  20%

VAT rates:

• 15% (Standard rate)
• 8%
• 5%
• 0% (Zero)

It is charged at the rates shown in the table below:

Note:

*  Interest income from Cyprus government savings bonds and development bonds and all interest earned by a provident fund is subject to special contribution for defence at 3% (instead of 10%).  In the case where the total income of an individual (including interest) does not exceed €11.960 in a taxable year, then the rate is reduced to 3%.

Deemed dividend distribution

When a Cyprus resident company does not distribute dividends within two years from the end of a tax year; 70% of accounting profits will be deemed to have been distributed. Therefore the 15% special contribution for defence is payable on deemed distribution of dividends by shareholders who are Cyprus tax resident. Deemed distribution can be reduced by payments of any actual dividends already paid during the same period.  Where a Cyprus company is owned by another Cyprus company (with shareholders not tax resident in Cyprus), then defence contribution paid by the subsidiary may be claimed back by non resident shareholders.

Company dissolution

Upon dissolution, the cumulative deemed undistributed profits of the previous five years will be considered as distributed upon dissolution and thus subject to special contribution for defence.  This provision does not apply in the case of dissolution under a Reorganisation.

Reduction of capital of a company

In the event of a reduction of capital, amounts paid or due to shareholders will be subject to special defence contribution after deducting any amounts which have been deemed as distributable profits, up to the amount of undistributed taxable income of any tax year before the deduction of losses from prior years.

Exemptions: in the following examples CGT does not apply:

·         Transfer arising from death of title owner

·         Exchange or sale of property under the Agricultural Land Laws

·         Gifts made between close relatives (up to 3rd degree relatives)

·         Gifts to a company where the company’s shareholders are members of the donor’s family (shareholders should continue to remain family members for not less than 5 years)

·         Gifts by a family company to its shareholders provided such property was originally acquired by the company by way of donation (the recipient must keep the property for not less than 3 years)

·         Gifts to charities and the Government

How CGT is calculated

·         CGT is calculated only on gains made after 1st January 1980.

·         Option 1:

·         Option 2:

Some exemptions from corporation tax are:

·         Profits from an office (permanent establishment) in another country

·         Dividends (Company profits paid to shareholders)

·         Profits from the sale of shares and other securities

Expenses incurred by the company solely for business purposes can be deducted from corporation and include:

·         Employer’s contributions to social insurance and approved funds on employees’ salaries

·         Entertainment expenses for business purposes (with limitations)

·         Donations to charities

·         Building maintenance for buildings subject to a Preservation Order (with limitations)

The following types of expenses are not allowed:

·         Expenses related to acquiring or maintaining of a private (saloon) car

·         Interest applicable to acquiring any asset (including a private car) not used in the business

Tax Losses

If a company makes a tax loss which cannot be set off against other income then it is carried forward so it can be set off against future profits.  There is no time restriction for this.

The losses of one company can be set off against the profit of another provided the companies are members of a group and both Cyprus tax resident.  Group is defined as; one company holding 75% or more of the shares of the other company.

Losses from an overseas office (permanent establishment) can be set off with profits of the company in Cyprus.

Annual wear and tear

If a company owns items of value (fixed assets) like; property; tools; vehicles etc then allowances are made for their depreciation (wear and tear).  Depreciation is calculated as a percentage of the cost of acquiring the asset.  The annual allowance is deducted from chargeable income.  The annual percentage by which the value of an asset is depreciated (rate of depreciation), depends on the type of asset.

Here are some examples:

• Plant and machinery 10%
• Tools in general 33.3%
• Furniture and fittings 10%
• Commercial motor vehicles 20%
• Commercial buildings 3%
• Motor boats 12.5%

• VAT applied to sales invoices is referred to as “output tax”.
• VAT applied to purchase invoices is referred to as “input tax”.
• VAT must be reported every 3 months

When output tax in a VAT period is greater than the input tax a payment has to be made to the state.  If input tax exceeds output tax the excess input tax is carried forward as a credit and set off against future output VAT or can be refunded in the following cases:

• 3 three years has elapsed from when the VAT became refundable
• When the refundable amount cannot be set off against output VAT until the 4th VAT period of the year following a year in which the VAT period in which the credit was created falls
• The input VAT relates to sales outside Cyprus but would have been subject to VAT had they been carried out within Cyprus
• The input VAT relates to zero rated transactions
• The input VAT relates to the purchase of capital assets of the company
• The input VAT relates to exempt services provided to non EU resident

For goods purchased from within the EU but outside Cyprus, the business does not pay VAT on receipt of the goods but will account for VAT using the purchase accounting method. This involves a simple accounting entry in the books of the business whereby he self-charges VAT and at the same time claims it back if it relates to taxable supplies thereby creating no cost to the business.  In cases where the purchase relates to an exempt transaction, the business must pay the VAT that corresponds to the purchase.

VAT Rates: 15% (Standard rate); 8%; 5%; 0% (Zero)

Zero Rate

ero Rate

• Export of goods to non EU countries and Intra-community supplies of goods
• Foodstuffs (except those taxed at 5% or 15%)
• Supplies of medicine falling within codes CN30.03 and CN30.04 and CN30.02

5% Rate

• funeral services
• road sweeping, refuse collection and recycling
• Services provided by; writers; artists and composers
• Supply of fertilizers; animal feeding stuffs; seeds
• Supply of live animals for human consumption
• Books, magazines and newspapers
• Gas
• Non-bottled water;
• Transport of passengers and luggage by bus
• Camping caravan parks
• Various goods for the use of handicapped persons
• Medicines and vaccines; Contraceptives; Women’s sanitary products; medical equipment when intended for the exclusive personal use of disabled persons
• Medical services (medical examinations or surgeries of cosmetic nature are not included);
• Ice-cream, yogurt ice-cream and similar products as well as certain salted or spicy products made from cereal, salted or spicy products made from potato and dry roasted or spicy nuts which are used for human consumption;
• Supply of food in the form of catering services from school canteens
• Services related to the renovation of property (when lived in for more than 3 years) which is primary residence; construction; plumbers, electricians, carpenters and oil painters. When the cost of materials exceeds 50% of the total value, VAT shall be charged at 15% on the value of the materials and the reduced rate of 5% on the value of service
• hair salon services
• Confectionery items; bottled water; manufactured beverages; juice drinks (except those taxed at the standard VAT rate)
• Food ingredients which are used in the preparation of foodstuffs and food supplements and foodstuffs substitutes
• Admission to cultural sporting and certain entertainment events and facilities

Reduced rate of 8%

• Transportation of passengers and luggage by taxi or sea
• Restaurant services and the supply of food (not the supply of alcoholic drinks)
• Hotel accommodation

Exemptions (The following goods or services are exempt from VAT)

• Letting of property (the letting of immovable property with the right of purchase is not exempt)
• Banking and financial services and insurance services (with some exceptions)
• Hospital, medical and dental care services (with some exceptions)
• Postal services provided by the national postal authority
• Management services provided to mutual funds

The difference between Zero rated and exempt rated supplies is that businesses that make exempt supplies are not able to recover the input tax.

Additionally; as an exception to the general rule, input VAT cannot be recovered in a number of cases which include; Purchase or hire of private cars and; Entertainment expenses other than those for employees and directors.

Key changes:

1. Place of supply of services.  The rules for determining VAT on international services will change.

   1. The range of Services not to be subject to local VAT when supplied internationally will increase

   2. The principle of taxation at the point of delivery/consumption will be adapted.

2. The Scheme for services supplied electronically as applicable to non-EU businesses will include services such as telecommunication and broadcasting

3. Reporting obligations:

   1. Even more additional filing requirements will be introduced for businesses making intra-EU supplies of services!

   2. Failure to comply may result in severe penalties.

4. The reclaiming of VAT by non-resident EU companies will be reformed to include; electronic filing; structured timetable for processing refund applications and; the right to interest on overdue refunds.

Self-employed:

The Contributions for self employed people are calculated as 12.6% of a pre‑determined “notional” income which varies depending upon profession or business activity.  The lowest level of “notional income” is €229 (Farmers; and similar professions; refuse collectors; workers in quarries, marine workers people responsible for provision of services and salesmen).  The highest level of notional income is €924

Employed persons

SI contributions for employees are 13.6% of salary (Employer pays 6.8% / Employee 6.8%).  The maximum level of annual income on which social insurance contributions are paid on is €48,048.

Other employer’s contributions

The employer makes the following other contributions based on employee’s emoluments:

• Social cohesion fund 2,0%
• Redundancy fund 1.2%
• Industrial training fund 0.5%*
• Holiday fund 8% (Restricted to the maximum level as stated above)