Scope of taxation
The basis of taxation with the new legislation is
the tax residency.
A company is defined as resident of Cyprus if its
management and control is exercised from Cyprus. Companies
resident in Cyprus will be assessed on their worldwide
income.
Tax rates for companies
| Taxable
income |
Tax
rate |
| Companies
(except International Business Companies which
have opted to be taxed at 4,25% for the years
2003, 2004 and 2005) |
0% |
| Public law constitutions |
20% |
| International Business
Companies which have taxable income for the
year 2001 and which have opted to be taxed according
to the transitional arrangements for the years
2003, 2004 and 2005
The companies which were registered on or after
1.1.2002 or were registered before 1.1.2002
but were dormant during 2001 cannot select the
above transitional arrangement. |
25% |
| Additional tax (2003 and
2004 only) on the taxable income of a company
or public law constitution if it exceeds £
1.000.000 |
30% |
Ship management companies
Ship management companies will continue to be taxed
at 4,25%.
Exemptions
· Dividend income from abroad and from Cyprus is
exempt from Income Tax.
· Profits earned from a permanent establishment abroad
are exempt from income tax. The exemption does not
apply if:
- the permanent establishment activities lead to
less than 50% investment income, and
- the income tax charged on these profits is not substantially
less than the corresponding Cyprus Income Tax.
· Profit on the disposal of securities. The exemption
stands for both shares in public companies and private
companies as long as the profit is in the nature of
income and not capital gain.
· 50% of interest received. Interest received in
the normal course of business will be considered as
business profit taxed at normal rates.
Allowable expenditure
· Donations or subscriptions for educational or other
charity purpose are allowable without restriction.
· Business entertaining expenses are only allowable
if their total does not exceed 0,5% of the total turnover
for the year up to a maximum of £5.000.
Not allowable expenditure
· Private motor vehicle expenses.
· Professional tax.
· Interest attributable to the cost of a private
motor vehicle (either used or not used for business
purposes), and any other fixed asset not used in the
business. This provision is only valid for seven years
since the acquisition day of the fixed asset.
Capital allowances
· All investment allowances are abolished.
· Capital allowances on extractive businesses are
abolished.
Goodwill
Proceeds from the sale of trade goodwill are now
taxed after deduction of any payments made to acquire
such goodwill.
Tax losses
· Abolition of the five year restriction for the
carrying forward of unutilized tax losses. Losses
incurred from the year 1997 onwards will be carried
forward indefinitely until they are set off. However,
IBC’s which have elected to be taxed at the preferential
rate of 4,25% can carry forward their losses with
no restrictions from the tax year 2001.
· Group loss relief is available to a group of Cyprus
resident companies in relation to current year losses.
Two companies will be considered as part of a group
if:
- a company is 75% subsidiary of another
- both companies are 75% subsidiaries of a third company
· Losses from overseas activities can be set off
against chargeable income for the year and can be
carried forward.
· On the conversion of a sole trader to a company,
the accumulated losses of the sole trader can be transferred
to the company and carried forward.
· Abolition of the 10% tax on utilization of losses
brought forward from previous years.
