Taxing of Companies & VAT Issues
Last Updated on Saturday, 19 September 2009 17:41
- Income Tax
- Dividend Income
- Special Defence Contribution (SDC)
- Company Re-organisations
- Captial Gains Tax (CGT)
- Losses
- Immovable Property Tax
- VAT
Resident companies are taxed on all sources in and out of Cyprus. Resident companies are ones whose management and control is exercised in the Republic. This is determined by
- Where the majority of the Directors reside
- Where the board meetings of the company are held
- Where the general policy of the company is formed (decision making powers)
Company tax rate is 10%. All business profits are taxed at 10%, with the exception of interest income.
Interest income of resident companies, that is other than business or deemed business income, is 50% exempted.
Interest income of non-resident companies is exempt from tax and also from the SDC.
Companies whose interest income is deemed to be part of the ordinary income in the carrying on of their business, such as banks, or derived from activiteis that are closely related to the derivation of their ordinary income, such as insurance companies, car dealers, do not receive the exemption and are taxed on 100% of that interest income.
Dividend income of resident companies is exempt from income tax and liable for 15% SDC if the dividends received were from
- a shareholding of below 1% or
- a shareholding of above 1% and at the same time that company has investment income and pays tax below 5%
Dividend income of non-resident companies is exempt from tax and also from the SDC.
Special Defence Contribution (SDC)
SDC is an additional tax which is levied on certain types of income received including dividends, interest and rents. SDC is applied to resident corporate taxpayers, it does not apply to non-resident corporates. The rates are as follows:-
|
Non-resident |
Resident |
|
|
Interest income |
Exempt |
10% from all sources |
|
Dividend income |
Exempt when received directly by non-resident corporate 15% when received by Cyprus nominees on behalf of non-resident corporate*
|
15% or 0%** |
|
Dividends from shipping |
Exempt |
Exempt |
|
Rent |
Exempt |
3% on 75% of gross rents received with a Cyprus source 3% on overseas rents received (this amount is reduced by the tax paid on receipts overseas) |
* unless the paying company is informed that the beneficiary is a non-resident
** Resident companies receiving dividends from an overseas entity will have a 15% withholding rate applied for SDC if participation is less than 1% (portfolio investments) or at least 1% of the share capital and 50% of the activities of the overseas company are from investment income AND the foreign tax burden is substantially lower than the Cyprus company.
Resident companies receiving dividends from an overseas entity will have a 0% withholding rate applied for SDC if participation in the share capital of the paying company is at least 1% and the paying company engages more than 50% in activities which lead to business income OR the foreign tax burden is NOT substantially lower than the Cyprus company.
No imposition of tax results from transactions in connection with
- Mergers
- Divisions, including partial divisions
- Transfers of assets
- Exchanges of shares
A system of deferral exists for the taxation of the capital gains related to the assets transfered until the actual disposal (outside of the group)
Capital gains tax applies to any gain from the disposal of immovable property. Gains are not a component of the ordinary income of a business, but instead are taxed separately at a rate of 20%.
Property includes the following
- immovable property within Cyprus, including land and buildings and other erections/structures, any rights attached to these, trees, vines and other plantations.
- shares in companies whose assets include immovable property
Gains from the sale of "titles" is exempt under the capital gains tax law.
The legislation states that any gain on the disposal of titles is exempt from income tax in Cyprus. No minimum participation threshold is required.
The full list of financial instruments that fall within the definition of titles is as follows:
- Ordinary shares
- Founder's shares
- Preference shares
- Options on titles
- Debentures
- Bonds
- Short positions on titles
- Futures/forwards on titles
- Swaps on titles
- Depositary receipts on titles (ADR and GDR)
- Rights of claims on bonds and debentures (rights on interest of these instruments are not included)
- Index participations, if the index derives from participation
- Re-purchase agreements or Repos on titles (where the agreement concerns the sale and re-purchase of titles and the price of purchase and sale is at market rates)
- Participations in the following types of companies:
- Russian OOO and ZAO
- US LLC provided that they are treated as corporations for tax purpose
- Romanian SA and SRL
- Bulgarian AD and OOD
- Units in open-end and closed-end collective investment schemes that have been incorporated, registered and operate in accordance with the provisions of the relevant legislation of the incorporated country. Examples of such units are
- Investments trusts, investment funds, mutual funds, unit trusts, real estate investments trusts
- International collective investments schemes - ICIS
- Undertakings for collective investments in transferable securities or UCITS
Losses of companies can be carried forward as long as there is no change of ownership within any three year period and a substantial change in the nature of the business.
A change in ownership occurs where
- more than 50% of the ordinary share capital of the company has been acquired
- two or more persons jointly (or severally) acquire at least 5% of the share capital of the company, so that together they hold more than 50% of the ordinary share capital of the company.
Losses within Cyprus resident companies can be utilised where the companies are part of the same group for the whole year of assement and both the surrendering company and receiving company are Cyprus resident companies. Two companies are deemed to be members of a group if one is the 75% subsidiary of the other, or where both are 75% subsidiaries each of a third company. Group companies can be a mixture of resident and non-resident companies, provided the non-resident comapny owns at least 75% of a resident company.
Ownership relates to
- voting shares
- rights to profits available for distribution
- rights to assets on wind-up
Immovable Property Tax
The tax is imposed yearly on all immovable property based in Cyprus, on the market value of that property as at 1st January 1980, on property owned by the taxpayer on the 1st January each year. If the property did not exist on 1st January 1980 tax is imposed on the deemed value of the property as at 1st January 1980. The return to the Director of the Department of Inland Revenue must be submitted by the 30th September each year for assessment on property held as at January of that same year.
Rates
- up to €170,860 - 0%
- €170,861- €427,150 - 2.5%
- €427,150 - €854,300 - 3.5%
- over €854,300 - 4.0%
VAT (Value added tax) is a broad based consumption tax imposed on all goods and services bought and sold within Cyprus and on imports. The VAT rate in Cyprus is 15% with some items attracting a lower base of 5% or 8%. Certain taxable supplies have a zero-based rate of VAT whilst others supplies are exempt. VAT is imposed on supplies of goods and services made within Cyprus, that are taxable supplies made by a taxable person for consideration and in the course of business carried on by that taxable person. Where a person's taxable supplies exceed €15,377 per year, registration for VAT is mandatory. Supplies made outside of Cyprus do not fall within the scope of VAT, except for services provided where the Reverse Charge Applies.
See VAT in Cyprus - Services provided from outside Cyprus to Cyprus Entities (Reverse Charge)
