Income Tax for Companies and other Legal Entities

Scope of taxation
A company which is managed and controlled in Cyprus, is considered as a tax resident in Cyprus and is liable to tax on income accruing or arising both from sources within and outside the Republic. A company which is not tax resident in Cyprus is liable to tax on income accruing or arising from sources within Cyprus only. Cypriot tax residency is achieved, in practice, by either having a majority of Cypriot resident directors or by ensuring that the major decision-making is taking place in Cyprus or a combination of the two; in other words its management and control is exercised in Cyprus. In addition and as of 31 December 2022 companies incorporated or registered in Cyprus, are considered Cyprus tax residents even if their management and control is exercised outside Cyprus, provided that such companies are not considered tax residents of any other jurisdiction.

Tax rate
A uniform corporate tax rate of 12.5% is applied to all companies either operating locally or internationally. This rate applies to profits after the deduction of all expenses incurred wholly and exclusively for the production of income.

Exempt income
The main income exemptions are as follows:

• Dividends income (see below for the provisions of the Special Contributions for Defence Law).
• Profits of a permanent establishment situated outside Cyprus. This exemption does not apply if the permanent establishment engages more than 50% in activities, which lead to investment income, and the foreign tax burden on the income of the permanent establishment is substantially lower than the tax burden of the Cypriot resident company.
• Profits from the disposing of securities of both capital and revenue nature. Securities include shares, government stocks, debentures, bonds, founder’s shares and rights thereof.
• 100% of interest income unless it is received in the ordinary course of business, or it is closely connected to the ordinary course of business in which case it is taxed as ordinary trading income (see below for the provisions under the Special Contribution for Defence Law).
• Rent of preserved building ( Subject to conditions)

Deductible expenses
In arriving at the taxable income all expenses incurred wholly and exclusively for the production of income, are deductible. There are certain restrictions in respect to entertaining expenses, private motor vehicle expenses, charitable donations etc.

As from 01 January 2023, businesses may also deduct expenditure made in respect of energy saving studies, by approved consultants.

Wear and tear allowances
The depreciation expense included in the financial statements is not a tax deductible expense. There are, however, predetermined rates in calculating the wear and tear allowance for business assets that are tax deductible.

Withholding taxes
There is no withholding tax on payments of dividends and interest to non- tax resident persons (individuals or companies). Payments of royalties which are derived from abroad and are paid abroad are also free from withholding tax.

Losses and group relief
Losses are carried forward for relief over the next 5 year period. Tax losses from tax year 2018 can be transferred and used until 2023. Any losses up to the tax year 2017 will not be available to offset 2023 profits.
Current year tax losses may be surrendered by one Cyprus tax resident group company to another.

Reorganisations
Special provisions apply in respect to company reorganisations so as to avoid any adverse tax implications arising from general group restructurings. These provisions are in line with the EU directive on mergers, acquisitions and reorganisations.

Unilateral tax relief
Relief for taxes paid abroad is granted in the form of a tax credit against tax payable in Cyprus. The relief is given unilaterally irrespective of the existence of a double tax treaty. Where a treaty is in force the treaty provisions (if (more beneficial) would apply.