Corporate Tax

Basis of taxation for companies

A Cyprus tax resident company is taxed on all taxable income accruing or arising from sources both within and outside Cyprus. A non-Cyprus tax resident company is taxed only on taxable income accruing or arising from sources within Cyprus.

A company is considered to be tax resident in Cyprus if it is managed and controlled from Cyprus.

Tax rate

The corporate income tax rate is 12,5%

TAX EXEMPTIONS

Type of Income

Interest income (other than interest arising in the ordinary course of business)

Dividend income (certain conditions apply)

Profit arising from the sale of Securities (note 1)

Profits of a permanent establishment outside the Republic (certain conditions apply)

Foreign exchange (FX) gains other than gains arising from trading in foreign currencies and related derivatives (note 2)

Exemption

100%

100%

100%

100%

100%

Notes:

1. The term “Securities” include shares, bonds, debentures, founders’ shares and other securities of companies or other legal persons, incorporated in Cyprus or abroad and options thereon. As per a circular issued by the Tax Authorities, the term also includes among others, options on Securities, short positions on Securities, futures/ forwards on Securities, swaps on Securities, depositary receipts on Securities (ADRs, GDRs), rights of claim on bonds and debentures (rights on interest of these instruments are not included), index participations only if they result on Securities, repurchase agreements or Repos on Securities, units in open-end or close-end collective investment schemes.

2. Companies trading in FX have an option to make an irrevocable election to be subject to tax only on realized FX differences.

In general, all expenses incurred wholly and exclusively for the production of income are deductible from taxable income. Expenses should be supported by appropriate documentation in accordance with the regulations. Deductible expenses include the following:

TAX DEDUCTIONS

Type

Deduction

Interest incurred for the acquisition of property, plant and equipment used for the business.

100%

Employer’s salary contributions to approved funds

100%

Donations to approved charities (with receipts)

100%

Cost incurred for acquisition of shares in an innovating business

100%

Notional Interest deduction (NID) on new equity introduced (note 1)

Up to 80% of taxable income

Royalty income and profits on the disposal of Intellectual Property (IP) rights (note 2)

80%

Losses of the current and previous 5 years (only with audited financial statements)

100%

Entertaining expenses for business purposes

1% of gross income or €17.086 (whoever is the lower)

The following types of expenses are not tax deductible:

  • Expenses of a private motor vehicle
  • Interest relating to the acquisition of a private motor vehicle

Notes:

1. The NID is calculated by multiplying the “new qualifying equity” by the “reference rate”. The tax deduction cannot exceed 80% of the company’s taxable profits. New qualifying equity for the purpose of NID includes paid up share capital or share premium and can be contributed in cash or in kind (provided the amount of new equity does not exceed the market value of the asset contributed). The reference rate is equal to the 10-year government bond yield of the country in which the qualifying capital is invested plus 3% premium, with the minimum being the 10-year Cyprus Government bond plus 3%.

2. In line with the latest international development and OECD action plan on BEPS, the Income Tax Law has been amended on 14 October 2016. As per the amendments the current IP Regime will phase out by 30 June 2021. The new IP regime introduces the idea of qualifying profits eligible for the 80% tax exemption which are calculated based on the “nexus approach” and relate to IP eligible for the new regime (qualifying assets).Qualifying Assets include amongst others patents, copyrighted software programs and other intangible assets but exclude trademarks and other copyrights. The “nexus approach” is based on R&D expenditure incurred to develop the qualifying assets.

ANNUAL WEAR AND TEAR ALLOWANCES

Tangible Assets

Allowance %

PLANT & MACHINERY

Plant and machinery

10% (20% if acquired between 2012 to 2016)

Machinery and tools used in agriculture

15%

Industrial carpets

10%

Furniture and fittings

10%

BUILDINGS

Industrial, agricultural and hotel buildings

4% (7% if acquired between 2012 to 2016)

Commercial buildings

3%

Metallic frame of greenhouses

10%

Wooden frame of greenhouses

33 1/3%

VEHICLES AND MEANS OF TRANSPORTATION

Commercial motor vehicles and motor cycles

20%

Fork lifts, excavators, loading vehicles, bulldozers and oil barrels

25%

Armored vehicles (used in security services)

20%

Specialised machinery for the laying of railroads (e.g. Locomotive engines, ballast wagon, container wagon and container sleeper wagon)

20%

New airplanes

8%

New helicopters

8%

New commercial vessels

8%

New passenger vessels

6%

Motor yachts

6%

Sailing vessels

4,5%

Steamships, tug boats and fishing boats

6%

Ship launching machinery

12,5%

Used commercial and passenger ships and capital additions

Over their useful lives

TOOLS

Tools in general

33 1/3%

OTHER

Computer hardware and operating systems

20%

Application software (cost of less than €1.709 can be written off in the year of acquisition)

33 1/3%

TV and video recorders

10%

Wind power generators

10%

Photovoltaic systems

10%