CYPRUS TAXATION – Belifor Cyprus

Cyprus tax regime is very attractive for professionals but of course for enterprises operating all around the world. The advantages and deductions offered place Cyprus’s Tax regime as one of the most attractive and competitive in the world.

A big advantage of Cyprus is the fact that it is an EU member, operating under a secure legal framework and protecting entrepreneurship while promoting organic growth.

Personal Tax:

Cyprus tax residents (individuals) enjoy the benefits of the various levels of tax rating according to their income, with 0% tax on yearly income up to €19.500. Tax rates start at 20% and reach 35% for annual income over €60.000. In addition, tax deductions and benefits are given to individuals willing to move permanently to Cyprus.

Corporate Tax:

The corporate tax rate of 12,5% is a huge advantage for any international entrepreneur. Enterprises that operate in and use Cyprus as a base for their business and have a registered office in the country, are considered tax residents of Cyprus. In addition to the corporate tax rate, companies enjoy many other deductions and exemptions.

On the tables below all the exemptions and deductions are presented, as well as tax loses relief for Cyprus companies.

1. Personal Tax

An individual who spends more than 183 days in Cyprus in a calendar year is considered a Cyprus tax resident. Days in and out of the Cyprus Republic are
calculated as follows:

• The day of departing out of Cyprus is considered a day out of the republic

• The day of arrival in Cyprus in considered a day within the republic

• Arriving and departing out of the Cyprus in the same day counts as one day of residence in Cyprus

• Departing and returning in Cyprus the same day counts as a day out of the republic

Foreign taxes paid can be credited against the personal income tax liability A Cyprus tax resident is taxed on all the collected income from sources within or out of Cyprus. A non-Cyprus resident is taxed on certain income collected from sources in Cyprus.

Income tax rates applied to individuals.

Yearly income	Tax rate	Accumulated Tax
€	%	€
0 – 19.500	Zero	Zero
19.501 – 28.000	20	1.700
28.001 – 36.300	25	3.775
36.301 – 60.000	30	10.885
Over 60.000	35

Exemptions of income tax for individuals

Type of Income	Exemption
Dividends	Whole amount
Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment. Exemption applies for a period of 10 years provided that the annual remuneration exceeds €100.000.	50% of the remuneration
Remuneration from any employment exercised in Cyprus by an individual who was not a resident of Cyprus before the commencement of the employment, for 3 years since the 1st of January of the year following the year the employment started. For employments commencing after the 1st of January 2012 or later the exemption applies for a period of 5 years starting from the tax year following thew year of commencement of the employment with the last eligible tax year being 2020. This exemption may not be claimed in addition to the immediately above mentioned 50% exemption for employment income	20% of the remuneration with a maximum amount €8.550 annually
Remuneration from salaried services outside Cyprus for more than 90 days to a non-Cyprus resident employer or to a foreign permanent establishment of a Cyprus resident employer	Whole amount
Profits from the sale of securities	Whole amount
Lump sum received by way of retiring gratuity, commutation of pension or compensation for death or injuries.	Whole amount
Capital sums accruing to individuals from any payments to approved funds (e.g provident funds)	Whole amount
Profits of a foreign permanent establishments under certain conditions	Whole amount

TAX Deductions on the income of individuals

Type of income	Deducted form income
Donations to approved charities	Whole amount
Since the 1st of January 2017 any amount invested each tax year in approved innovative small and medium size enterprises,either directly or indirectly	Up to the 50% of taxable income as calculated prior to this deduction (maximum of €150.000 deductions per year) The amount of discount that was not used can be transferred and claimed in the next 5 years.
Contributions to trade unions or professional bodies	Whole amount
Income from property rental	20% of rental income
Social insurance contributions, medical funds (maximum 1.5% of remuneration), pension and Provident fund contributions (maximum of 10% of remuneration) and life insurance (maximum 7% of the insured amount)	Up to 1/5 of the chargeable income
Loss of current year and previous years (for individuals required to prepared audited financial statements, current year losses and losses of the previous five years only may be deducted)	Whole amount

2. Corporate Tax

The Cyprus corporate tax regime, in addition to the low tax rate (12,5%) offers tax exemptions, deductions for expenses and tax loses relief.

Below you will find all the advantages a Cyprus company can benefited.

Corporate tax

A Cyprus (tax) resident company is taxed on the income accrued or derived from sources in Cyprus and abroad. A non-Cyprus resident company is taxed on the income accrued or derived only from sources in Cyprus.

Tax residency

Legal entities are considered tax residents of Cyprus if the management and control of the activities are exercised via the republic of Cyprus..

Corporate tax rate

The corporate tax rate for Cyprus companies is 12,5%

Corporate Tax Exemptions

Type of Income	Exemption
Dividends	Whole amount
Profit from the sale of securities	Whole amount
Interest not arising from the usual activities or closely related to the ordinary activities of the company	Whole amount
Gains related to foreign exchange differences (forex) with the exception of forex arising from trading in foreign currencies and related derivatives	Whole amount
Profits of a foreign permanent establishment, under certain conditions	Whole amount
Benefits, profits or redundant obtained from restructuring	Whole amount

Corporate expense tax deductions

Expenses incurred wholly and exclusively in earning taxable income are deducted for corporate tax purposes.

Type of expense	Deduction
Donations to approved charities	Whole amount
Interest expense incurred for the direct or indirect acquisition of 100% of the share capital of a subsidiary company will be treated as deductible for income tax purposes provided that the 100% subsidiary company does not own (directly or indirectly) any assets not used in the business. If the subsidiary owns (directly or indirectly) assets not used in the business, the interest expense deduction is restricted to the amount which relates to assets used in the business.	Whole amount
Equity introduced to a company as from 1 of January 2015 (new equity) in the form of paid up share capital or share premium is eligible for an annual notional interest deduction (NID). The annual NID deduction is calculated as an interest rate on the new equity. The relevant interest rate is the yield on 10 year government bonds (as at December 31 of the prior tax year) of the country where funds are employed in the business of the company plus a 3% premium (subject to a minimum amount which is the yield on the 10 year Cyprus government bond as the same date plus a 3% premium).	The NID deduction cannot exceed the 80% of taxable profit derived from assets financed by new equity (as calculated prior to the NID deduction)
Donations to approved charities (with receipts)	Whole amount
Royalty income, embedded income and other qualifying intangible assets according to the “new” Cyprus regime (1 July 2016)	80% of the net profit as calculated in accordance with the “new” regime
Royalty income, embedded income and other qualifying income derived from qualifying intangible assets according to the “old” Cyprus IP box.	80% of the net profit
Expenses for scientific researches including research for development that is carried out from small-middle size enterprises.	Whole amount
Employer’s contributions to social insurance and approved funds on employees salaries.	Whole amount
Employer’s contributions to medical funds from employees.	1% on employee’s remuneration
Employer’s contributions to Provident/Pension funds for employees.	Up to 10% on employee’s remuneration
Entertainment expenses for business purposes.	The lower amount of €17.086 or 1% on the gross company income

Non-deductible corporate expenses

Type of expense	No deduction
Expenses the purpose of which was not the acquiring of income	Whole amount
Private car expenses	Whole amount
Interest applicable to the cost of acquiring a private vehicle regardless the use and on other assets that were not used for establishment purposes.	Whole amount for 7 years since the day of acquiring the relevant asset.
Salaries provided within a tax year, and of which the contributions to social insurance or other approved funds were not paid within the same year.	Whole amount

Losses carried forward

The tax loss occurred after a tax year and which cannot be set off against other income is carried forward subject to conditions and is set off against the profits of the next five years.

Losses carried forward – Group of companies

The losses carried forward rule can be applied with the profits of another company (for the same year) of the group of companies – provided the companies are tax residents.

When is a company considered as a part of a Group of companies?

One Cyprus tax resident company holding directly or indirectly at least 75% of the voting shares of another Cyprus tax resident company.
Both of the companies are at least 75% (voting shares) held, directly or indirectly, by a third company.

As from 1 January 2015 interposition of a non- Cyprus tax resident companies will not affect the eligibility for group relief as long as such companies are tax resident of either an EU country or a country with which Cyprus has a double tax treaty or an exchange of information agreement (bilateral or multilateral).

A Cyprus tax resident company may also claim the tax losses of a group company which is tax resident in another EU country, provided such EU company firstly tries the all possibilities available to utilize its losses in its country of residence or in the country of any intermediary EU holding company.

A partnership or a sole trader transferring a business into a company can carry forward tax losses into the company for future utilization.

Losses from permanent abroad establishments

Losses from permanent establishments abroad can be set off with profits of the company in Cyprus. Subsequent profits of an exempt permanent establishment abroad are taxable up to the amount of losses allowed.