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Cyprus country profile - 2019
Cyprus country profile - 2019
Key tax factors for efficient cross-border business and investment involving Cyprus.
- EU Member State
- Double Tax Treaties
- Most important forms of doing business
- Legal entity capital requirements
- Residence and tax system
- Compliance requirements for CIT purposes
- Corporate income tax rate
- Withholding tax rates
- Holding rules
- Tax losses
- Tax consolidation rules/Group relief rules
- Registration duties
- Transfer duties
- Controlled Foreign Company rules
- Transfer pricing rules
- Thin capitalization rules
- General Anti-Avoidance rules (GAAR)
- Specific Anti-Avoidance rules/Anti Treaty Shopping Provisions/Anti-Hybrid rules
- Advance Ruling system
- IP / R&D incentives
- Other incentives
- VAT
- Other relevant points of attention
- Contact us
EU Member State
Yes.
Double Tax Treaties
With the following countries, territories and jurisdictions:
| Andorra(a) | Finland | Lebanon | Serbia |
| Armenia | France | Lithuania | Seychelles |
| Austria | Germany | Luxembourg | Singapore |
| Bahrain | Georgia | Malta | Slovakia |
| Barbados | Greece | Mauritius | Slovenia |
| Belarus | Guernsey | Moldova | South Africa |
| Belgium | Hungary | Montenegro | Spain |
| Bulgaria | Iceland | Norway | Sweden |
| Canada | India | Poland | Switzerland |
| China | Iran | Portugal | Syria |
| Czech Rep. | Ireland | Qatar | Thailand |
| Denmark | Italy | Romania | UAE |
| Egypt | Jersey | Russia | UK(b) |
| Estonia | Kuwait | San Marino | Ukraine |
| Ethiopia | Latvia | Saudi ARabia | USA |
(a) Effective as of January 11, 2019.
(b) New double tax treaty signed with entry into force on July 18, 2018 and effective in Cyprus as of January 1, 2019, and in the UK (i) for withholding taxes (WHTs) for amounts paid or credited on or after January 1, 2019, (ii) for personal income tax and capital gains tax from April 6, 2019, and (iii) for corporation income tax for any financial year beginning on or after April 1, 2019.
Most important forms of doing business
Limited Liability company with share capital and Partnerships.
Legal entity capital requirements
No.
Residence and tax system
A company is resident if its management and control are exercised in Cyprus. Registration in Cyprus is not decisive.
Resident companies are taxed on their worldwide income. Non–resident companies are taxed only on their Cypriot source income, unless they have a permanent establishment in Cyprus and have opted to be treated as a resident company (to benefit from a worldwide loss set-off).
Compliance requirements for CIT purposes
Companies are required to file annual tax returns prepared based on audited financial statements. The filing deadline is 12 months after the financial year ending December 31. For electronic filings the deadline for submission is extended by three calendar months. Companies are also required to prepare accounts and pay tax on a temporary and self-assessment basis. Corporate entities must also submit a provisional tax return prior to August 1st of each year, based on the estimated income for the current year. Provisional tax payments must be made on estimated current's year income in two equal installments, on July 31 and December 31. If the income declared for provisional tax purposes is less than three-fourths of the income as finally determined, the taxpayer must pay, in addition to the normal tax, an amount equal to one-tenth (10 percent) of the difference between the final and the provisional tax. Estimated income can be revised (upwards/downwards) anytime before December 31, the date the last provisional payment is due.
A final payment must be made on August 1st of the following year of assessment, in order to bring the total installment payments to the level of the actual liability due according to the actual tax liability determined.
Corporate income tax rate
The standard corporate income tax rate is 12.5 percent.
Withholding tax rates
On dividends paid to non-resident companies
No.
On interest paid to non-resident companies
No.
On patent royalties and certain copyright royalties paid to non-resident companies
No withholding tax is levied on royalties paid to non-residents who are not engaged in any business in Cyprus and the intellectual property right is granted for use outside Cyprus. Otherwise, a withholding tax of 10 percent (or 5 percent for film royalties) applies, subject to reduction by double tax treaties
On fees for technical services
Yes, at a rate of 10 percent on gross payments to non-residents providing technical assistance to Cyprus tax-resident corporations.
On other payments
No.
Branch withholding taxes
No.
Holding rules
Dividend received from resident/non-resident subsidiaries
Exemption method (100 percent) subject to conditions:
- Minimum participation requirement: No (as of tax year 2009);
- Minimum holding period: No;
- Taxation requirement: Profits in the subsidiary taxed at more than 5 percent, or the distributing company produces more than 50 percent of its total income from non-passive sources.
- Anti-avoidance: dividends will not be exempt if they are allowed as a tax deduction in the jurisdiction of the foreign paying company. Credit in the event of taxation will be refused in the case of an arrangement, which having been put into place with the main purpose of obtaining a tax advantage, is not genuine, having regard to all relevant facts and circumstances. An arrangement will be regarded as not genuine to the extent that it is not put into place for valid commercial reasons which reflect economic reality.
Capital gains obtained from resident/non-resident subsidiaries
Only on immovable property situated in Cyprus.
Tax losses
Yes. Tax losses may be set-off against income from other sources in the same year, and unused losses may be carried forward to 5 subsequent years. No carry-back is available.
Tax consolidation rules/Group relief rules
Yes, for companies in a 75 percent group, provided that both companies are tax resident in Cyprus for the entire year including the year of incorporation.
Registration duties
- EUR 105 for registration of a company with share capital.
- EUR 175 for registration of a company without share capital.
Transfer duties
On the transfer of shares
No transfer duty on transfer of shares.
Small administrative fee (EUR 17) on filing of the form for the issue and allotment of shares.
Stamp duty on a share purchase agreement based on the amount stipulated in the agreement: No stamp duty is imposed on sums not exceeding EUR 5,000; 0.15 percent on sums not exceeding EUR 170,000; 0.2 percent plus EUR 247.50 on sums exceeding EUR 170,000; with a maximum stamp duty of EUR 20,000.
On the transfer of land and buildings
Yes, if situated in Cyprus land transfer fees may apply depending on the value of the property.
Stamp duties
Yes, if situated in Cyprus land transfer fees may apply depending on the value of the property. Also, stamp duty based on the amount stipulated in the agreement: No stamp duty is imposed on sums not exceeding EUR 5,000; 0.15 percent on sums not exceeding EUR 170,000; 0.2 percent plus EUR 247.50 on sums exceeding EUR 170,000; with a maximum stamp duty of EUR 20,000.
Real Estate Taxes
Yes, on a municipal basis depending on the total value of the taxpayer's property. Rates depend on the location of the real estate.
Controlled Foreign Company rules
Controlled Foreign Company rules apply as of January 1, 2019. The regime assesses a Cyprus tax-resident company with a CF charge based on the arm’s length measure of the undistributed profits of the CFC that are attributable to the activities of Significant People Functions (SPFs) carried on in Cyprus.
Transfer pricing rules
General transfer pricing rules
No, but arm’s length principle applies. Transfer Pricing in place only for intra-group financing.
Documentation requirement?
Only for intra-group financing. For the rest, recommended as a matter of practice.
Thin capitalization rules
No.
General Anti-Avoidance rules (GAAR)
Yes. GAAR introduced in line with ATAD as of January 1, 2019.
Specific Anti-Avoidance rules/Anti Treaty Shopping Provisions/Anti-Hybrid rules
The Director of Inland Revenue maintains the right to ignore/examine artificial transactions.
Advance Ruling system
Yes.
IP / R&D incentives
IP Incentive of 80 percent notional deduction from qualifying IP income in line with the modified nexus approach as provided in BEPS Action 5.
Other incentives
Incentive for individuals to invest in innovative SMEs in the form of a deduction from taxable income of the amount invested (up to 50 percent of the individual's taxable income or EUR 150,000, whichever is lower). Any surplus shall be carried forward for a period of 5 years subject to the threshold limitations.
Incentives provided for the film industry in the form of:
- cash rebate (up to 25 percent - 35 percent on eligible expenditures incurred in Cyprus) and/or;
- tax credit (as a reduction of applicable corporate income tax, up to 35 percent of the eligible expenditure made in Cyprus (total tax credit must not exceed 50 percent of the applicants’ taxable income) and/or;
- tax discounts on investments made in equipment and infrastructure by SMEs. Up to 20 percent of the qualifying production expenditure in the case of small enterprises and 10 percent of the qualifying production expenditure in the case of medium-sized enterprises. In the case of investment in equipment, the equipment should remain in the territory of Cyprus for a period of at least 5 years.
VAT
The standard rate is 19 percent and the reduced rates are 5 and 9 percent.
Other relevant points of attention
No.
Source: Cypriot tax law and local tax administration guidelines, updated 2019.
Contact us
George Markides
KPMG in Cyprus
T: +357 22 209 000
E: George.Markides@kpmg.com.cy
Margarita Liasi
KPMG in Cyprus
T: +357 22 209 000
E: Margarita.Liasi@kpmg.com.cy
