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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.

Effective 1 January 2023, a company incorporated or registered in the Republic of Cyprus but is managed and controlled from outside the Republic of Cyprus, will by default be considered a tax resident of Cyprus provided it is not tax resident in any other jurisdiction.

Tax rate

The Corporate Income Tax (CIT) rate is 12,5%.

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Tax Diary 2023
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Tax Exemptions

TYPE OF INCOME

EXEMPTION

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

100%

Dividend income (certain conditions apply)

100%

Profit arising from the sale of Securities (Note 1)

100%

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

100%

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

100%

Rent from a preserved building (certain conditions apply)

100%

Capital gain from the disposal of intellectual property rights under the IP regime (read on Tax Incentives)

100%

Income of a company which operates in the Republic in the audio-visual industry (Note 3)

up to 50%

Notes:

1. The term “Securities” includes 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 competent Tax Authorities, the term further includes amongst 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 realised FX differences.

3. Profits of a company arising from the production of films, series, and other audiovisual programs in Cyprus are exempt from CIT. The exemption shall not exceed 35% of the eligible production expenditure incurred in Cyprus. The amount of audiovisual tax exemption, subject to certain criteria and conditions, shall not exceed 50% of the company’s taxable income relating to the production. The audiovisual tax exemption not granted due to the above percentage limitation can be carried forward within the next five (5) years.

Tax Deductions

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

TYPE OF EXPENSE

TAX 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%

Eligible infrastructure and technological equipment expenditure in the audiovisual industry

20% for small-sized enterprises
10% for medium-sized enterprises

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 five (5) years (only with audited financial statements)

100%

Entertaining expenses for business purposes

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

Expenditure for the maintenance of buildings under preservation order (certain conditions apply)

Depends on the size of the building

Donations to political parties (certain conditions apply)

Up to €50,000

Expenditure for scientific research, and for Research & Development (Note 3)

100%

Investment in an innovative small/medium sized business (Note 4 – certain conditions apply)

Up to 30% of the invested amount (capped at €150.000)

The following types of expenses are not tax deductible:

  • Expenses not incurred wholly and exclusively for the generation of the taxable income
  • Expenditure not supported by appropriate documentation
  • Expenses of a private motor vehicle
  • Interest relating to the acquisition of a private motor vehicle (this provision does not apply after the lapse of seven (7) years from the date of purchase of the relevant asset)

Notes:

1. The NID is calculated by multiplying the new equity by the reference rate. The tax deduction cannot exceed 80% of the company’s taxable profits. Click here for more information on the NID.

2. In line with the latest international developments and the 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.

3. For expenses incurred during the years 2022, 2023 and 2024 (including expenses of a capital nature) for which a deduction is granted in accordance with Section 9(1)(l), an additional tax deduction is granted for research & development expenses, equal to 20% of the relevant expenses. This additional deduction cannot be claimed alongside the deduction provided under the Cyprus IP regime.

4. The tax allowable deduction for a company investing in an innovative small-medium sized enterprises (SMEs) is available up to 30 June 2024. It is limited to 30% of the invested amount and the total deductible amount may not exceed €150,000 per year. The investment can be made either directly, or through an investment fund or an alternative trading platform and only from own capital. The eligible shares must be ordinary shares and be held by the investor for at least three (3) years.

Annual Wear and Tear Allowances

TANGIBLE ASSETS

ALLOWANCE

PLANT & MACHINERY

Plant and machinery

10%

Machinery and tools used in agriculture

15%

Industrial carpets

10%

Furniture and fittings

10%

BUILDINGS

Industrial, agricultural and hotel buildings

4%

Commercial buildings

3%

Metallic frame of greenhouses

10%

Wooden frame of greenhouses

33 1/3%

VEHICLES & 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 TANGIBLE ASSETS

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%
Our Tax Practice Portfolio

Our Tax Department has been thriving for over a decade, with our clients seeking our professionals’ advice and assistance in all aspects relating to taxation for corporates as well as individuals, in line with the latest local and international tax developments.

Our clients entrust us with the structuring of their operations in a way that incorporates the applicable tax incentives and ensures their compliance with any and all of their tax obligations and filing of their tax returns. The exceptional quality of our tax professionals is the reason why our clients select us to be their entrusted tax partners.

Contact us today for an initial, complimentary consultation.

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