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Cyprus Corporation Tax Information

In Cyprus Corporation Tax laws are favourable compared to the UK. Anyone wishing to set up a company in the here would well advised to inform themselves thoroughly on this matter.

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Cyprus Corporation Tax as it relates to locally based companies

 
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Information about Cyprus

Did you know that in the Republic of Cyprus, corporation tax rates are the lowest in the European Union?

Aside from the fact that Cypriot corporate tax stands at just 10%, there are a number of good reasons why the formation of a company in the Republic makes perfect sense. For instance, according to Cypriot tax laws, dividends paid are exempt from income tax.

 

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Tax Glossary

A quick overview of Corporation Tax in the Republic of Cyprus

Cyprus Corporation Tax

Cypriot taxation of company profits is based on the world-wide income of a company whose management and control is based and exercised in the Republic.

The sources of income for resident companies are classified as follows:
a) business profits
b) interest
c) rents from property
d) any consideration in respect of trading goodwill

Resident companies (except International Business Companies i.e. Offshore companies):
Resident companies pay corporation tax at 10% on all their chargeable income viz. business profits, income from property, income from trading goodwill and 50% of interest income.
Supplementary corporation tax at 5% (windfall tax) is chargeable on income in excess of C£1m for the years 2003 and 2004 only.
Resident companies as well as other statutory bodies are NOT subject to special defence contribution at 3% on the chargeable income.

 

Dividends

Dividend income is not charged under income tax law and there is no withholding tax, but dividend income is charged under the special defence contribution law as follows:

a. Resident Individual:
There is withholding of 15% special defence contribution on gross dividend
.
b. Resident Company:
Dividends between resident companies are not subject to tax and therefore there is no withholding tax.

c. Non-Resident person, individual or company:
There is no withholding of special defence contribution.

Dividends received by a resident company from a non-resident company are also subject to a special defence contribution of 15%, unless the resident company holds at least a 1% stake in the non-resident company. This exemption does not apply if the non-resident company engages in activities which result in more than 50% of its gross income being derived from investments, and if the foreign company's tax burden on said income s is substantially lower than that of the company in Cyprus.

Deemed Dividends
Resident Companies are deemed to have distributed to the resident shareholders 70% of their after-tax accounting profits at the end of two years from the end of the tax-year to which these profits relate, and account to the Inland Revenue Department for a 15% special contribution for defence. The aforementioned deemed distributable profits are liable to a 15% special defence withholding tax in regards ONLY to the resident shareholders, individuals or companies, and not to non-resident entities.

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Corporation Tax on Interest income

Resident companies: For Interest received inside or outside Cyprus, corporation tax is payable, but 50% of the interest is exempt from income tax in Cyprus.

Non-resident: Any interest received is not subject to corporation tax.

Special Defence Contribution

Resident companies are liable to a 10% special defence contribution on interest income from any source, whether from inside or outside Cyprus. This deduction is made at source if received from within Cyprus, or by assessment on the basis of returns, if received from sources abroad; foreign tax is allowed for.

Non-resident companies: are not subject to tax on interest

Note that:
a) Interest received from the ordinary carrying on of a business, including interest closely connected with the ordinary carrying on of that business is not treated as interest but as business profit.
b) Interest deemed to be payable to a company according to Cypriot Income Tax Law, under the provision in respect of loans to directors e.t.c. is subject to special defence contribution.

The Republic of Cyprus' Corporation Tax on Rents Received

Resident companies: For rents received by resident companies, either from inside or outside Cyprus, corporation tax is payable at a rate of 10%.

Non-Resident companies: Are taxed on their rents from Cypriot sources ONLY.

Special Defence Contribution

Resident companies: All gross rents, less 25%, are subject to a special defence contribution of 3%.

Non-Resident companies: Foreign corporate entities are not liable for a special defence contribution.

Taxation on Profits received from abroad

Profits from a permanent establishment abroad are completely exempt from tax; this exemption is of importance to companies which derive their business income from a permanent establishment outside the Republic of Cyprus. The exemption, however, is subject to the rule that the company's activities do not lead to more than 50% of its income deriving from investments, and the foreign tax burden is not substantially less than the burden of tax in Cyprus. Investment income is defined at the income which does not derive from running a business, employment, or pensions.

Losses: It is noteworthy that general losses may be carried forward indefinitely.

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The Cyprus Mortgage Market

Since its accession to full European Union membership, there have been a number of changes in the financial markets of Cyprus. Mortgages and lending packages in particular have evolved, as the Republic's banking and financial laws have been brought into line with the E.U.

And, depite the global economic slump during the past couple of years, mortgages up to 70% are still quite readily available from Cypriot lenders.
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Disclaimer. Please note that the tax information given on this website is displayed for guidance purposes only. It does not replace the need for professional advice by a qualified accountant.. E&OE

 

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